Sony forecasts massive financial loss on PS3 launch

Sony Corporation is expecting substantial first year losses from the launch of its PlayStation 3 console in November, its Q4 financial statement revealing a gloomy forecast for the currently profitable games division.

For the fourth quarter ended March 31st, Sony posted a loss of YEN 66.5 billion (EURO 463 million), 10 million higher than the loss during the same period a year prior. The company attributed the larger loss to changes in taxes paid compared with a year ago, and restructuring expenses of YEN 75.3 billion (EURO 524 million) which were higher than those of the previous year.

The games division remains profitable at present however, and although profits fell by almost 80 per cent to YEN 8.7 billion (EURO 60.5 million), sales rose by 31.4 per cent to YEN 958.6 billion (EURO 6.7 billion). The company recorded sales of 2 million PSP units during the quarter (a slight dip on the 2.5 million a year ago) and 2.32 million PS2s, down from 6.08 million a year earlier.

On a yearly basis, PS2 hardware sales remained relatively static at around 16 million units worldwide, and the increase in PSP units from 3 to fourteen million boosted overall sales significantly, ensuring that the games division remains profitable.

With the launch of the next-generation console in November, which it is widely expected Sony will sell at a loss for at least the first year, the company is expecting to post a loss during the current fiscal year of approximately YEN 100 billion (EURO 697 million), although post-launch costs for the units are expected to be drastically reduced.

According to Reuters, Sony SVP, Takao Yuhara, stated: "We believe that we can lower costs dramatically (on the PS3) through chip shrinkage and by cutting the number of parts but there is no way to avoid high costs in the first year."

The company is expecting to bring the PS3 business to profitability in as short a time frame as possible, focusing on expanding the platform as rapidly as possible following the launch.

Sony plans to sell 6 million PS3 units by March 2007, some four to five months after its global launch, and given the difficulties Microsoft encountered with the ambitious tri-continent launch of its Xbox 360 last year, that target would seem highly optimistic at best - even on the assumption that the component shortage issues that plagued Microsoft's launch are not a factor for Sony.