http://www.forbes.com/2001/01/25/0125disaster.html

Disaster Of The Day: Sony
Amy Doan, 01.25.01, 3:29 PM ET

SILICON VALLEY - Sony's videogame division could be aptly nicknamed Resident Evil or League of Pain--after two of its more popular game titles.

Increasing losses in the PlayStation 2 game division have forced the Tokyo company to slash its fiscal 2001 profit forecast in half, from more than $80 million to $42.4 million today, despite the fact that its overall electronics division is performing as expected. The much-hyped new game console is dragging Sony's (nyse: SNE - news - people) numbers down.

Sony has had trouble getting PlayStation 2 machines out the door because of production failures with a complex component that handles graphics. The company also said today that the high expense of manufacturing the 128-bit machine has increased loss forecasts.

Sony's third-quarter earnings were $618.4 million, down 20% from last year, although revenue was up 10% at $18 billion. While the consumer electronics giant's digital cameras, video cameras and chips are selling well, the company announced today that it will lay off 500 people in a San Diego group that makes picture tubes for computer monitors.

Sony has admitted that it can't sustain its electronics growth rates, in part due to weakening demand and growing competition. But PlayStation 2 was expected to eventually prop up its numbers--not add to its losses--and now that's not so certain.

The company's shares have been chopped in half since PlayStation 2 launched in Japan last spring. And Sony's circle of pain has widened to include its third-party software makers like Redwood City, Calif.-based Electronic Arts (nasdaq: ERTS - news - people) and U.K.-based Eidos, which still have only a tiny market for their games. Several game software companies have trimmed earnings forecasts and delayed the release of their new PlayStation 2 titles because the demand just isn't there. Sony promised that it would release an average of 100,000 PlayStation 2 systems each week throughout the holiday season, but many U.S. retailers doubt that was the case.

The fact that Sony's games division is losing money the year it unleashes a new machine is nothing new; game console makers are accustomed to eating heavy losses because of high marketing and production costs. They can usually sit back and wait for the fat margins on software sales to help them return to an operating profit. But Sony has missed out the one holiday season that it had to itself. By next Christmas, both Microsoft (nasdaq: MSFT - news - people) and Nintendo will have their own high-performance machines on the market.

Microsoft has proclaimed that it has learned from Sony's PlayStation 2 glitches (for one thing, it is going to let outside companies make most of the components); Sony can only hope that its assembly line problems are contagious.

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most of it kinda sounds similar according to todays news.................imo ps3 will come through perfectly fine, the only thing they need to concentrate on is bringing down manufacturing costs. it already has the reliability, great games an excellent online which will keep improving and has stunning looking titles upcoming.

in my opinion..............they should keep 2 ps3 sku on the shelfs. one just like it is but with full ps1 and ps2 support using emulation, and another chopped down version without emulation and without wireless net with external power supply.

2008 has been a great year for gamers.........2009 will be even better for gamers, i still have socom and motorstorm 2 to get in january, then onto killzone 2..............and with the rest of the highly likely 2009 releases on ps3 i will be very happy indeed, and please sega release yakuza 3 in the uk sometime in 2009 i really want to play that game.

The last line in the paragraph about MS learning from Sony's glitches, and the RRoD that followed is some suh-weet poetic justice.

well it was unfortunate for gamers who have had to rebuy another 360 like me, i wont be doing that again. hopefully the new 360 wont be prone to that problem.

if it cost them roughly 1 billion in repairs, i doubt they will see that back end of this FY, mabey end of next FY but deffo not this one.

LOL..You should have highlight some other figures in that report, like Sony's revenue and profits...which are drastically down, from 7-8 years ago, and thus, they are without the cushion of before.

This. This. And more this.

That article should act as a reminder that writing off a console early is stupid.

I'm not saying that PS3 at $299 = complete turnaround of generation, but it's not exactly going to hurt sales...

I blame the exchange rate

You should compare this to the 360, not the PS3: one year head start and glitchy hardware, followed by bigger than expected growth.

ps2 managed to fix the problem, in the second year.

non existant by the third (the year i got my ps2 and still working now).

and the grow was done because of the price cut a 199$ arcade model, the ps2 managed to maintain a price for years.

360 will reach the ps2 price by 2010 if continue like this and even maybe cheaper.

WTF is League of Pain?

well i read an article( i dont remember were ) that said that ms was not going to cut the price of the 360 for a longgg time.