Sony slows PS3 shipments following weak sales

Sony plans to slow down the rate of PlayStation 3 shipments, according to forecasts the company revealed today. The news follows reports that sales are moving slowly. The company also said it plans to cut PS3 production costs, and predicts a rise in profits. Observers are divided on whether a PS3 price cut is likely in the immediate future.

“With an operating loss running at 38 percent it is unlikely that Sony will do any further price drops before it sees substantial cost savings for the PS3,” predicted Carl Gressum, Senior Analyst at leading research consultancy, Ovum. “This is also reflected in the conservative and defensive PS3 shipment guidance from Sony; 11 million for the next 12 months. From November 2006 to end of March 2007, Sony shipped 5.5 million PS3s – roughly half of the amount in half the time.”

Another $1bn in losses predicted

At Japan's largest stock brokerage, Nomura Securities, financial experts disagreed sharply with Sony's rosy game segment profit forecasts. The games division will suffer more than $1bn in losses in the coming year, predicted analyst Eiichi Katayama, in a private investment briefing released only to his company's clients.

Sony released details of its performance for the fourth quarter of the financial year ended March 31 to analysts in Tokyo today. The company also revealed its own predictions for sales, shipments and profits in the coming financial year. The latter figures include the 'conservative' PS3 shipment forecasts of 11 million in the 2007-2008 financial year. Shipments of 16 million units had originally been expected during this period.

Nomura's analysts expect Sony to fall slightly short of even this target, with around 10 million PS3s sold during the year.

The poor performance at Sony's game division during the quarter was 'alarming, but not surprising', Gressum said. "Revenues spiked about 85 percent to 281 billion yen [$2.33 billion], however at the same time operating losses amounted to 108 billion yen [$890 million], or, a 38 percent operating loss", he explained. "This tremendous loss is due to the PlayStation 3 launch, where Sony is subsidizing every sold hardware unit, however, hidden in these numbers are profitable returns from the PlayStation 2, and the PlayStation Portable. So the negative impacts from the PS3 are most likely even greater.

Sony Ericsson saves the day

While Sony's games division was bolstered by profits on the PS2 and PSP, the company as a whole was buoyed up by Sony Ericsson's mobile phone sales.

"Sony's white knight that saves the quarter is actually its Sony Ericsson joint venture, which reported stellar growth of 47 percent in revenues to 2,925 billion yen ($24.3 billion), and 139 percent increase in income before taxes to 362 billion yen ($3 billion) in the quarter," said Gressum. "The Europeans can also be proud of their performance, as the European revenues increased by 24 percent in the last financial year, which is impressive in a region that is not renowned for strong economic growth."