Sony's PS3 Reaches Crucial Moment: Powerful Enemy Blocks Its Way in North America
Sony's PS3, a next generation game console which was created by combining the Sony's best technologies, has now reached a crucial moment. According to Enterbrain, a publisher of Famitsu, 610,000 PS3s have actually been sold at stores since Nov 2006 in Japan. This number is far behind the PS2 sales, which sold nearly 2 million units within 2 months, and it's also less than half of Nintendo Wii's sales number.
PS3 contains a cutting edge microprocessor placed in its heart and has actualized super high-defenition game graphics. Additionally, it features an ability of playing back next generation DVD "Blu-ray Disc". In return for this massive power, even a cheap edition of PS3 costs almost 50,000 yen. Besides, not enough software titles are prepared yet.
At the beginning of the launch, hardcore gamers in Japan supported the sales but that have been drastically stalled since the beginning of this year. On and after mid-January, PS3's weekly sales have declined to about 30,000 units. This is contrastive to Nintendo Wii which is still in a shortage due to a huge demand from families.
However, Kouichi Hamamura, a president of Enterbrain says "Don't have to be tragic yet", because the PS3 is the opposite of the Wii and they don't compete each other directly. "PS2 owners are still waiting and seeing how many and what kinds of PS3 games are going to be released. Several promising PS3 games are going to be released in the second half of this year, which will regain the hardware sales."
However, analysts are rather keeping their eyes on the battle between PS3 and Microsoft's Xbox 360 in North America. 360's powerful hardware features "realistic graphics" as a selling point, which means that the 360 is a direct rival for the PS3.
Microsoft launched 360 in the end of 2005, 1 year earlier than PS3. While they're suffering a crushing defeat in Japan, they've been making a steady progress in their homeland since the launch. Microsoft shipped over 10 million units worldwide by the end of last year and 60% of them are estimated to be in North America. The strength of the 360 comes from its over 100 titles. Thanks to a $399 price tag which is $100 cheaper than the PS3, and enough hardware supply, 360 sold more than twice as many as PS3 at the year-end sale in North America last year.
PS3 made a good start as well in North America. Sony shipped 1 million units last year in North America and those PS3s disappeared immediately from the shelves. As of February 2007, looking around stores in Silicon Valley, West Coast, you cannot find any PS3s in major stores like Best Buy or Circuit City. Wealthy hardcore gamers and tech savviests are buying them. "PS3 is outselling 360 for now. PS3 has an amazing power and you can show it off to your friends." says a store employee.
Sony Fears 360's next move
However, it's hard to think that Sony easily keeps selling PS3 until total number of units reaches to that of 360. Without a doubt, Microsoft is going to start "squashing" PS3. An executive at a certain major software company says "I suppose that Microsoft will start a big price drop within this year and Sony should follow that or they'll lose their market share."
At this point, Sony's fiscal matter appears to be a problem.
According to their consolidated accounts for the 3Q 2006 which they announced in January 2007, their electronics division recovered their profit to 177.4 billion yen thanks to a good sales of digital cameras and their corporate reconstructing. By contrast, their game division, who made 70 billion yen profit last 3Q, falls into 54.2 billion yen loss this 3Q. Their pursuit of power for the PS3 raised the manufacturing cost and that forcing them an enormous back spread. Because they still supposed to be in the red in 4Q 2006, the game division probably loses up to 200 billion yen this fiscal year.
"By shrinking the chip size, improving yield rates and reducing number of parts, we're going to cut down the manufacturing cost of PS3. We'll get rid of our back spread in the second half of next year." says Nobuyuki Oneda, CFO of Sony. Actually, Sony Computer Entertainment (SCE) is promoting the cut down project, which is led by Ken Kutaragi, Chairman of SCE. So there is a possibility of Sony succeeding in cutting their manufacturing costs by 50% in the second half of this year. They're expecting the cut down and software sales expand to lead their game division to a balanced budget in next year.
However, if Microsoft massively drops the price of the 360, Sony's plot will fail in no time. Industry analysts of major securities companies are forecasting that Sony's game division keeps making a loss which will be more than 100 billion yen in next fiscal year, supposing that Sony will drop the price of PS3.
Howard Stringer, CEO and Chairman of Sony, and other Sony executives are committing themselves to make their consolidated profitability to be more than 5% in 2007. If their game division keeps losing their money, they barely keep that commitment, in spite of a rapid recovery of the electronics division. Are they going to fight a war of attrition with Microsoft? This is a difficult problem for Sir Howard Stringer.
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