PS3 launch damages Sony profits

'Strategic price' contributes to a 68 per cent drop in operating profits as worldwide shipments of next gen console reach 5.5 million.

Sony has announced that the launch of the PlayStation 3 has contributed to a 68 per cent drop in operating profits to JPY 71.8 billion (EUR 438.3 million) for the year ended March 31, compared to 226.42 billion (EUR 1.38 bn) a year earlier

"In the Game segment, there was a significant operating loss as a result of the sale of PS3 at strategic price points lower than its production cost during the introductory period," said the company in its annual report.

Sales for the twelve months were up 10.5 per cent to JPY 8.3 trillion, with net profit up 2.2 per cent to JPY 126.3 billion (EUR 773.4m).

Sony also suffered its biggest quarterly loss for four years for the period from January to March 2007, with a net loss of JPY 67.6 billion (EUR 413m).

Sony's Game division recorded a JPY 232.3 billion (EUR 1.4 bn) loss, primarily due to selling the PS3 lower than the manufacturing price, as well as the associated costs of the worldwide launch.

The company noted that PS2 sales decreased because of a decline in software sales, but income from the PSP business increased due to continued cost reductions of the hardware.

To date, Sony has shipped 5.5 million PlayStation 3 units, 14.20 million PlayStation 2 units and 8.36 million PSP units.

The company was positive about the future, expecting PlayStation 3 sales to increase and the cost of manufacturing the new home console to drop.

"A significant reduction in operating loss is expected due to rapid reductions in hardware production costs and an enhanced line-up of software titles in the PS3 business," said the company.

Sony expects operating profits of JPY 440 billion (EUR 2.6bn) for the current financial year ending March 2008.

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