PlayStation 3 pulls down Sony profits

PlayStation 3 pulls down Sony profits

Sony's core electronics business more than doubled profits in the last quarter of 2006, but failed to offset price cuts to its PlayStation 3 console, leading to an overall profit decline of just over five percent, the company said on Tuesday.

The company said sales and operating revenue increased 9.8 percent to ¥2.6 trillion (US$21.4 billion) while net profit fell 5.3 percent to ¥159.9 billion.

Sony Computer Entertainment., the division responsible for its PlayStation gaming consoles, was the only one of Sony's main business units that registered a loss in the quarter. It lost ¥54.2 billion primarily due to the retail price of the more expensive of the two consoles being reduced from a planned ¥62,790 to ¥49,980 in Japan. The cut was made, Sony says, due to negative feedback from consumers.

Sony's electronics business had profits more than double to ¥177.4 billion on 16.9 percent higher sales of ¥1.9 trillion.

The unit had a generally positive quarter with sales of Bravia LCD televisions and Cybershot digital still cameras increasing. Europe saw the biggest percentage sales jump, up 21 percent, thanks to better LCD TV and Vaio PC sales, while tough competition in the US TV market meant sales there increased by just three percent.

Sony Pictures returned to profitability as sales there jumped 47 percent, but sales in the financial services division fell nine percent.

Underlining the generally positive results, Sony revised its full-year profit forecast upward for the year to the end of March. It now expects to record a net profit of ¥110 billion for the year, up from its previous forecast of ¥80 billion, although still lower than the ¥124 billion it reported last year. The sales forecast was left unchanged.

Sony will target cost savings in the PlayStation 3 by introducing more advanced chips and consolidating components to reduce the overall number of parts, Sony's chief financial officer Nobuyuki Oneda said.

The company has started production of a new version of the Cell processor built with a 65-nanometer production process. The chip in current consoles is built using a 90-nanometer process and the upcoming switch will mean a chip that is 40 percent smaller. Costs will fall in line with the size reduction. Sony did not say when the new chip will appear in consoles.

Sony wouldn't provide any PlayStation 3 shipment estimates for the coming financial year but said it remains confident it will ship six million consoles up to March. It also revised upwards its PlayStation 2 shipment forecast from 11 million units to 13 million units. Sony counts shipments as finished consoles leaving its factory for Sony warehouses and distributors.

Oneda ruled out the possibility of further price cuts in the near future, but hinted that this could happen in two or three years' time.

Sony Q3 Earnings Table

October to December 2006October to December 2005Percentage change
Sales and operating revenue¥2.6 trillion¥2.4 trillionup 9.8%
Operating income¥178.9 billion¥210.3 billiondown 14.9%
Net income¥159.9 billion¥168.9 billiondown 5.3%
Source: Sony Corp.

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