Sony's Achilles Heel: The PS3

Howard Stringer’s lengthy, difficult restructuring of Sony looks like it’s working: Q2 sales were up 12%, to $18.1 billion; the company netted $641 million. Consumers are snapping up Sony’s cameras, PCs, and to a lesser extent, its high-end Bravia TVs.

The problem: Sony’s video game business, which was supposed to be the company’s standard bearer as it moves forward, is falling behind. Response to its new PS3 game unit, released late last year, has been underwhelming, forcing the company to slash prices throughout the summer and fall. In the U.S. where the consoles were originally sold for $499 and $599, Sony has knocked down prices to $399 and $499; it made similar cuts in Europe and Japan.

That means that even though game sales increased more than 40%, to $2.1 billion, the game unit’s operating loss more than doubled to $841 million, as Sony increased the loss on each machine sold, and wrote down the value of its inventory.

Sony will argue that it can deal with the PS3 losses because it will make it up on software sales down the road. And of course the PS3 is supposed to be the trojan horse that gets Sony’s Blu-Ray DVD players into consumers’ homes. We’ll see. In the meantime, the hottest video game console belongs to Nintendo, (its cheap, easy-to-play Wii), and and hottest video game title belongs to Microsoft (its blockbuster Halo franchise). That’s a stunning turnaround for Sony, which dominated video games only a few years ago. How are they going to hit reset?

See Also:
Halo Maker Bungie Splitting Off From Microsoft

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