PlayStation 3 price cut pulls down Sony profits

Sony reports 5.3 per cent fall in net profit

Sony's core electronics business more than doubled profits in the last quarter of 2006, but failed to offset price cuts to its PlayStation 3 game console, leading to an overall profit decline of just over 5 per cent.

The company said sales and operating revenue increased 9.8 per cent to YEN 2.6 trillion ($US21.4 billion) while net profit fell 5.3 per cent to YEN 159.9 billion.

Sony Computer Entertainment, the division responsible for its PlayStation gaming consoles, was the only one of Sony's main business units that registered a loss in the quarter. It lost YEN 54.2 billion primarily due to the retail price of the more expensive of the two consoles being reduced from a planned YEN 62,790 to YEN 49,980 in Japan. The cut was made, Sony said, due to negative feedback from consumers.

Sony's electronics business saw profits more than double to YEN 177.4 billion on 16.9 per cent higher sales of YEN 1.9 trillion, it said.

The unit had a generally positive quarter with sales of Bravia LCD televisions and Cybershot digital still cameras increasing. Europe saw the biggest per centage sales jump, up 21 per cent, thanks to better LCD TV and Vaio PC sales, while tough competition in the US TV market meant sales there increased by just 3 per cent.

Sony Pictures returned to profitability as sales jumped 47 per cent, but sales in the financial services division fell 9 per cent.

Underlining the generally positive results, Sony revised its full-year profit forecast upward for the year to the end of March. It now expects to record a net profit of YEN 110 billion for the year, up from its previous forecast of YEN 80 billion, although still lower than the YEN 124 billion it reported last year. The sales forecast was left unchanged.

Sony's mid-term business plan has targeted a profit margin of 5 per cent for the coming fiscal year. Sony's electronics business is already meeting its part of the target and will continue to do so next year however the games unit needed to improve, Sony's chief financial officer, Nobuyuki Oneda, said.

He expected to bring the company's games unit closer to break-even in the second half.

Sony would target cost savings in the PlayStation 3 by introducing more advanced chips and consolidating components to reduce the overall number of parts, Oneda said.

The company is already on the way to the first of these targets, with the recent start of production of a new version of the Cell processor built with a 65-nanometer production process. The chip in current consoles is built using a 90-nanometer process and the upcoming switch will mean a chip that is 40 per cent smaller.

Costs would fall in line with the size reduction, Sony said. It did not say when the new chip would appear in consoles.

Sony wouldn't provide any PlayStation 3 shipment estimates for the coming financial year but said it remained confident it would ship 6 million consoles up to March. It also revised upwards its PlayStation 2 shipment forecast from 11 million units to 13 million units. Sony counts shipments as finished consoles leaving its factory for Sony warehouses and distributors.

Oneda ruled out the possibility of further price cuts in the near future, but hinted that this could happen in two or three years' time.

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Martyn Williams

IDG News Service
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