Sony: 4Q Profits Surge, PlayStation 3 Losses Dwindle
Shrugging off losses a year ago, Sony capped its Blu-ray sales driven PS3 comeback in recent months by posting a $277 million profit for its fourth fiscal quarter on Wednesday. Full year profits tripled to a company record $3.5 billion, and the company pulled in 29 billion yen ($276 million) for the January-March period, a strong reversal of its 67.6 billion yen ($647 million) losses during the same period a year ago.
Interestingly, while sales were solid in LCDs, digital cameras, and Vaio computers, they declined in mobile phones, CRTs, and -- surprise! -- sales of the PS2. Surprise, I say, because even though it's outlived and outsold every other console I can think of pretty much ever, NPD's still been reporting U.S. sales of around 200k units a month. That's down from a year ago, and there's no arresting the PS2's descent from orbit, but you really have to hand it to Sony's eight-year-old scrapper. I remember playing SSX, Dynasty Warriors 2, Kessen, Eternal Ring, Madden NFL 2001, Summoner, and TimeSplitters back in November 2000 and with the exception of SSX, which played great, and Madden, which at least looked as much, wondering "That's it Sony? That all you got?" And here we are, nearly eight years later, staring at over 127 million PS2s sold worldwide.
Chances of the PS3 replicating that success? I'd say today almost zero. The PS3's chugging along at 12.6 million units worldwide since its late 2006 launch. It'll be lucky to sell half as many systems by the time the PS4 shows up (as early as 2010, by the way). Sony predicts it'll sell another 10 million PS3s for the fiscal year through March 2009. That would make around 23 million. Compare that to the Xbox 360's 19 million and Wii's 26 million already today.
The good news (for Sony) is that the company seems to have its operating costs in hand. Operating losses were improved, from 113 billion yen ($1.1 billion) a year ago to just 4.7 billion yen ($44.7 million) this quarter. That's largely the result of Sony getting its PS3 losses under control.
Speaking of PS3 losses, The Guardian's Jack Schofield speculates Sony may be losing $260 per PS3 based on reverse engineering Sony's figures in the context of its quarterly earnings report:
On Sony's own figures, the games division made a loss of $130 for each PlayStation 3 shipped. Let's assume that it's making pots of money on the PSP and the PlayStation 2: the PS2 is now hugely profitable and still sells more games than anything else. These two platforms could easily have made a profit of $1.2bn in the year. In that case, the total PS3 loss would have been $2.4bn shared between 9.24m PS3 consoles, or $260 per PS3 -- including any attached Sony games. Hm, is that a reasonable guess or not?
Of course we already speculated as much back in November 2006, though Nikko Citigroup suggested in January this year that Sony may have halved its production costs, from $800 down to $400 per unit (and who knows, perhaps less than that five month later).
Note that Sony's openly warning it'll actually take a 20 percent spill later this year due partially to the strengthening yen. As the yen gets stronger, export costs are likely to brutalize international Japanese manufacturers.
What's it all mean for you at the sales counter? According to Lazard Capital analyst Colin Sebastian (by way of Next Generation) Sony management is now considerably less enthused about a PS3 price cut in 2008.
During its earnings call, Sony management indicated the company is now more focused on achieving profitability in the PlayStation segment and rolling out online services (e.g., PlayStation Home) rather than chasing unit market share vs. Microsoft and Nintendo.
Importantly, management comments also suggest that a price cut is less likely on the PS3 this year, at least in the near term.
$400 for the entry-level PS3 for the next seven months? Don't bet on it. Speculation about price cuts on a in-no-way-cheap $400 piece of hardware can put buyers into standby mode, so of course Sony's going to ix-nay an ut-cay at the analyst / media level. Sony may in fact be thinking it can rest on its Blu-ray laurels and hit that "10 million sold" number based on video sales alone. That would be a mistake, especially with game sales poised to bypass video sales (it's already blown past film) in the near future.
That said, I don't think there's much chance the price on at least one of the models won't drop in time for the holiday season 2008. A $300 or even $350 40GB PS3 could put Sony past Microsoft at a point where coming in second (to Nintendo's Wii) is just as important as finishing first.
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"Chances of the PS3 replicating that success? I'd say today almost zero. The PS3's chugging along at 12.6 million units worldwide since its late 2006 launch. It'll be lucky to sell half as many systems by the time the PS4 shows up (as early as 2010, by the way)."
There are so many things wrong with this statement it is hard to know where to begin. Maybe the fact that the PS3 reached the 10 million sales mark faster than the PS2 or the fact that Playstation consoles have all had a 6 year span (meaning a 2012 release for the PS4). Maybe I can mention the fact that the original Playstation took about two years to break ten million in sales but it reached over a hundred million thanks largely to Metal Gear Solid and Final Fantasy VII which are both getting new installments on the PS3.