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Missteps on PlayStation 3 Linked To Sony...s Drop in Quarterly Profit

By Martin Fackler


The dip in Sony’s quarterly earnings released early Tuesday underscore what many analysts call the biggest single challenge now facing the recovering Japanese electronics conglomerate: the shaky start of its long-awaited PlayStation 3 game console.

On Tuesday, Sony said net profit slipped 5.3 percent to 159.9 billion yen ($1.31 billion) in the quarter ended Dec. 31. The company, based in Tokyo, blamed a large loss in its games division, despite rebounding sales in its bread-and-butter consumer electronics.

The games division posted a quarterly operating loss of 54.2 billion yen ($446 million), in contrast to a profit of 67.8 billion yen in the quarter a year earlier. Sony said the decline was a result of a decision to set the price of the PlayStation 3 below the cost of production as a way to bolster market share. It also pointed to one-time start-up costs for PlayStation 3, which was released in Japan and the United States in November.

Analysts, however, said the weak results reflected more fundamental problems with the new console — a high price tag and a complexity that is scaring away all but die-hard game fans. They added that Sony still had plenty of time to turn PlayStation 3’s fortunes around, but only if it cut prices further and made the console more appealing by adding games.

“PlayStation 3’s performance so far? In a word, bad,” said Yuta Sakurai, an analyst at Nomura Securities. “It is clearly not good for Sony that a strategic product is off to a weak start. But it’s still early. This race is a marathon, not a sprint.”

Sony and its chief executive, Howard Stringer, had hoped that PlayStation 3 would become the company’s latest “champion product,” much like its predecessor, the PlayStation 2, which became a worldwide blockbuster with more than 106 million units sold since 2000.