Bumper results for Sony, but will it turn around PS3?

26 10 2007

Sony has rebounded from its earlier lacklustre performance to post second quarter profits of ¥73.7 billion ($641 million), fuelled by strong gains in its movie and consumer electronics units.

But what of prospects for its next gen games console, the PlayStation 3?

So far, just 5.6 million units sold worldwide, with the company likely to miss its current financial year target of 11 million units. Plus the double whammy of outperformance by Nintendo’s Wii and just a handful of games titles published. Revenues in Sony’s games division were up 43% at $2.12 billion, however, losses doubled to $841 million.

It’s widely documented that Sony loses money on every console shipped, so even with the $100 price cut for the U.S. version and a lower-priced entry level model for European prospects, all hinges on must-have games being released by the major publishers.

Sony is also getting its ducks in a row when it comes to attracting consumers beyond the hardcore gamers it knows will snap up the consoles, with or without hitting sweeter price points. A new version of the device which morphs the PS3 into a broader home entertainment proposition, combining a TV receiver and DVR, goes on sale in Europe early next year. The company is also ramping up investment in Home, its virtual world which adds everything from community features, through to opportunities for upselling its other entertainment franchises; due to emerge from its beta chrysalis during 2008.

While attractive pricing is an obvious weakness of the PS3, Nintendo’s gamble of producing a lower-specification console which retails for a significantly lower cost has proved astute. Critically, the Wii has cut through to the women’s market, not the traditional preserve of hardcore gamers.

Evidence is emerging that PS3 may be starting to buck the downward trend, with the latest sales figures for European markets showing stronger sales than Xbox 360. There remains, however, a huge gap to close on the best selling Wii.

As disappointing as PS3 sales have proved to date – and in spite of CFO Nobuyuki Oneda’s confirmation that the year one sales target is unlikely to be met – The Street obviously believes overall group performance to be in rude health, with company shares closing up 6% on the day.