[DeadmeatGA]

http://www.japantimes.co.jp/cgi-bin/...20031024a1.htm

VIDEO GAME R&D COSTS BLAMED
Sony second-quarter profit tumbles 25%

By TAIGA URANAKA
Staff writer

Sony Corp. said Thursday its group net profit fell 25.3 percent in the second quarter to 32.92 billion yen due to large research and development costs in its game division.
Group revenue for the July-September period edged up 0.4 percent to 1.8 trillion yen.

The consumer electronics giant, which has been suffering lackluster performance, said there were signs of a pickup in its electronics business, which accounts for more than two-thirds of the group's total revenue.

During the period, the electronics division's operating profit grew 36.2 percent to 35.8 billion yen, while the division's sales slipped 1.4 percent to 1.21 trillion yen.

The firm said that semiconductors, including charge-coupled devices for digital cameras, Vaio PCs and DVD recordable drives, drove up profit, while cathode-ray tube TVs and Clie personal digital assistants suffered during the three-month period.

The firm's game unit saw operating profit plunge more than 90 percent to 2.2 billion yen due to declining sales of PlayStation and PlayStation2 consoles and game software in Japan and overseas.

The company said the decline is partly attributable to a rebound from the increased demand seen last year, when PlayStation2 consoles were marked down and local dealers decided to hoard their merchandise in the lead up to a strike by dock workers on the U.S. West Coast.

Sony said the game unit's profit was hurt by major research and development spending.

Takao Yuhara, Sony's chief financial officer, said the firm will increase the division's R&D budget by 50 percent to 90 billion yen for the full year through March 31 to develop semiconductor devices used for "the next-generation platform" and the PSP hand-held game console.

The Japan Times: Oct. 24, 2003

[Paul]

Good.

Sony spending tons of cash on the future is a good thing, thanks for the good news DMGA!

[Sonic]

There is already another thread like this. Thread closed.

Thread reopened.

[nonamer]

Originally Posted by Sonic

There is already another thread like this. Thread closed.

Thread reopened.

LOL!

[Megadrive1988]

IBreL


Sony had better be spending massive amounts on R&D otherwise PS3 could be in serious trouble ( and its not )

[zurich]

Chris Morris over at CNN seems to have a bone to pick with SCE (written in the 2nd person no less!)...

Your earnings this morning were pretty disturbing -- with a sharp drop in profits and a slashed full-year operating profit target. Part of that is your movie division's fault (and with "Gigli" in this quarter's crop, you had to have seen that coming). But what was particularly shocking was how badly your gaming division performed.

Operating income fell more than 91 percent. Sales were down almost 36 percent. And while the July-September quarter typically isn't a hot one in the gaming industry, you can't blame industry trends for today's numbers. This one's your fault. You could have prevented it all with a simple price cut.

<and so on and so forth>

http://money.cnn.com/2003/10/23/comm...ming/index.htm

[nondescript]

Once again, thanks Sonic for taking charge and giving a semblance of order. Don't know why this thread was reopened, but oh well. <shrug>

Sony Corp. said Thursday its group net profit fell 25.3 percent in the second quarter to 32.92 billion yen due to large research and development costs in its game division.
Group revenue for the July-September period edged up 0.4 percent to 1.8 trillion yen.

Sony actually did slightly more business than last quarter.

The consumer electronics giant, which has been suffering lackluster performance, said there were signs of a pickup in its electronics business, which accounts for more than two-thirds of the group's total revenue.

During the period, the electronics division's operating profit grew 36.2 percent to 35.8 billion yen, while the division's sales slipped 1.4 percent to 1.21 trillion yen.

The firm said that semiconductors, including charge-coupled devices for digital cameras, Vaio PCs and DVD recordable drives, drove up profit, while cathode-ray tube TVs and Clie personal digital assistants suffered during the three-month period.

The consumer electronics division sold 1.4% less stuff, but actually made more 36.2% more money (operating profit). Probably because they getting out of low-margin businesses like CRT-TV's (hence the layoffs) and improvements in manufacturing techniques.

The firm's game unit saw operating profit plunge more than 90 percent to 2.2 billion yen due to declining sales of PlayStation and PlayStation2 consoles and game software in Japan and overseas.

The company said the decline is partly attributable to a rebound from the increased demand seen last year, when PlayStation2 consoles were marked down and local dealers decided to hoard their merchandise in the lead up to a strike by dock workers on the U.S. West Coast.

They are selling less games and consoles than last year, partially because of labor problems, and partially because they sold so many last year, and most people who want a PS2 have one.

Sony said the game unit's profit was hurt by major research and development spending.

Because some of the profits were used in R&D, the money spent did not show up in the operating profits (I don't know why, since technically this would be net profit, not operating profit, but it must be some internal accounting procedure)

Takao Yuhara, Sony's chief financial officer, said the firm will increase the division's R&D budget by 50 percent to 90 billion yen for the full year through March 31 to develop semiconductor devices used for "the next-generation platform" and the PSP hand-held game console.

The Sony Group continues to put more money into R&D, including capital investments such as semiconductor manufacturing assets. They obviously do not see the impending doom that has been prophised by some.

They spent part of their operating profit, so consequently net profit is lower. Investors will get smaller dividends this year, depressing the stock price.

The Usual Disclaimer: I don't expect that anyone will be convinced, I'm just presenting my view. If Dante's philosophers were still debating the existence of God after being damned to the deepest circle of hell, I certainly don't expect to convince anyone here.

[DeadmeatGA]

SCEI barely broke even with an annual R&D budget of $400 million until this quarter; it will surely dip into red once the R&D budget is doubled to $800 million to complete PSX3 and PSP, as well as bills for its new fabs arrive.

After SCEI bleeds a couple billion, it will come under a heavy pressure to restructure and turn a profit like any other units, which will be tough with such a high fixed cost.

PSX3 business model can be supported only if PSX3 does more business than PSX2 did. It doesn't appear to be heading in that direction at this point, with a falling demand.

[Panajev2001a]

What did you say about Dante ????

They were not sent to the deepest ( in terms of height as the Hell is struvtured ) the Spirita Magna are not even in Hell.

I am not sure when you read Dante's Commedy, but Aristotle, the master of all who know, is clearly not in eternal pain/damnation.

The Sony Group continues to put more money into R&D, including capital investments such as semiconductor manufacturing assets. They obviously do not see the impending doom that has been prophised by some.

Sony ought to do this: PSP and PlayStation 3 need to be kick-ass products as they launch against fiercer competition.

Also a good deal of that money goes to R&D of new fabs and new manufacturing processes ( which have enabled PlayStation 2 to be profitable and drop in price putting Xbox's profits into trouble and into the red even more ): CELL will not only be used by SCE and the fabs built for SCE will also be used by the other Sony subdivisions.

They decided to re-organize once more around the technology active side of the company allowing the whole Sony group to move forward: it is a scandal how good Sony has become in chip manufacturing over the past few years thanks to SCE and related R&D efforts and the rest of Sony group manufacturing like only 20% of the chips in-house and buying $2 Billion worth of ICs from therid parties and competitors.

You cannot pretend to compete with manufacturer A when it is manufacturer A-syster company which sells you the chips you are going to use: tip, you are not going to get the best deal compared to company A's own products.

Now they consolidated all the Semiconductor R&D in one virtual center ( you will not have Sony Electronics doing R&D for chips competing basically with SCE, etc... ) basiclaly around SCE which was the smart idea: they have 4 fabs now ( two, in Oita, co-owned with Toshiba and two at Nagasaki fully owned by SCE and Sony ) and very intelligent partners such as Toshiba and IBM in micro-processor and manufacturing technology research which is helping them.

One side of Sony kept stayign on the technological edge and looked forward in the future while other sides like Sony Electronics have been a bit too happy with the money that SCE helped to make.

When you consolidate and re-organize there is money to be spent and when you have hot new technologies like CELL investing money in R&D is not a bad choice: there could be better moments, but this has to be done now and it is better that they start including Semiconductor R&D in their Yearly and Quarterly reports so that these expenses can spread over three years and not all during the launch of PlayStation 3.

[Panajev2001a]

Originally Posted by DeadmeatGA

SCEI barely broke even with an annual R&D budget of $400 million until this quarter; it will surely dip into red once the R&D budget is doubled to $800 million to complete PSX3 and PSP, as well as bills for its new fabs arrive.

After SCEI bleeds a couple billion, it will come under a heavy pressure to restructure and turn a profit like any other units, which will be tough with such a high fixed cost.

PSX3 business model can be supported only if PSX3 does more business than PSX2 did. It doesn't appear to be heading in that direction at this point, with a falling demand.

No Deadmeat,

CELL is not a SCE bound product and the fabs SCE will have are going to be used by the rest of Sony ( they are not SCE bound either ): remember they will have a consolidated Semiconductor R&D group now ( essentially built around SCE ).

Ken Kutaragi made a smart choice and this is part of the progress he must do if he wants to be at Sony's C.E.O. in the future: the R&D budget of SCE was increased as they finally decided to have such a strong Semiconductor division help with its work other subpdivisions at Sony thus wasting less money over-all in the future.

If we can increase the production of ICs in-house compared to the ICs that are bought from third-parties and competitors we would save at least $1 Billion each year or more ( when fab capacity has increased enough ).

Sony's PSX will be produced in SCE fabs basically even if it is not a SCe product its chip will come from SCE's 90 nm lines and this is only an example.

You also cannot compare the performance of SCE ( great ) with the shoddy one Sony Electronics and Sony Music have shown and the popularity of Ken Kutaragi even between investors with the popularity of other big guys at Sony.

SCE has already a good structure and it is not showing any sign of being grossly inefficient: something Sony Electronics and Sony Music certainly cannot claim.

PlayStation 2 sales will pick up again and they have not launched the re-designed PSTwo yet and I think as a platform both software and hardware wise it will be a popular format for a while.

Also, I have good hopes for the PSP ( which is produced in the same lines which manufacture the 90 PSX SoC ).

[marconelly!]

PSX3 business model can be supported only if PSX3 does more business than PSX2 did. It doesn't appear to be heading in that direction at this point, with a falling demand.

When GC and Xbox each reach 60 million sold units, while selling for $200, we'll discuss about 'falling demand'. Untill then, just suck it up and realize that PS3 will be just as much of a success as PS1 and PS2 were.

[zurich]

I'm surprised that the PSX got the EE&GS@90nm chips before the massmarket PS2, which would benefit more from the reduction in cost.

[Panajev2001a]

Originally Posted by zurich

I'm surprised that the PSX got the EE&GS@90nm chips before the massmarket PS2, which would benefit more from the reduction in cost.

They are both getting it around the same time: PSX is not out yet.

[Tahir2]

Deadmeat they taught you no manners at school and home or do you prurposely wish to enrage people when you keep on going on about PSX3 this and PSX2 that.............. please finally will you STOP.

WRT this thread, if Sony pull off another PS2 with the PS3 now would be an excellent time to buy Sony shares as a mid term investment (3-4 years).

Investing in the future is a tricky business, investing in the next Playstation is a 'no brainer.'

The very small print disclaimer: I am not responsible if you lose your house, job, wife etc or worse still if you go bald. If you decide to remortgage your house and invest in Sony you do it of your own freewill however if you make any profits I want a 10% cut.

[nondescript]

Originally Posted by Panajev2001a

What did you say about Dante ????

They were not sent to the deepest ( in terms of height as the Hell is struvtured ) the Spirita Magna are not even in Hell.

I am not sure when you read Dante's Commedy, but Aristotle, the master of all who know, is clearly not in eternal pain/damnation.

Haha, you called me out. I haven't read Dante since high school, but yes, I was referring to the philosophers in the seventh (pretty sure its seventh)circle of hell. I thought that was the deepest level of hell. Obviously Dante did not send all philosophers to hell.

Originally Posted by Panajev2001a

Sony ought to do this: PSP and PlayStation 3 need to be kick-ass products as they launch against fiercer competition. [etc...]

Cool down, I agree with you.

Sony consumes so many chips, and since they demand the best process techniques, its only logical that they move R&D of critical components in-house. To do otherwise would place their product timeline at substantial risk.

I was simply pointing out that the Sony execs clearly disagree with DGMA and Co.'s bleak assessment. And between internet forumites and managers of billion-dollar companies, I tend to give more weight to the latter.[/quote]

[Panajev2001a]

Philosophers in the 7th circle of Hell... I will get back to you on that one.

The great philosophers like Aristotle, Plato, etc... are outside hell... they are in an area just before it.

They are subject to no punishment other than not being able to stay with God.

Also, do not worry... I was not angry at you, but I was just stating my point... sorry if I seemed to be jumping on your back, it was not meant to be that kind of a post.

[wazoo]

Originally Posted by marconelly!

When GC and Xbox each reach 60 million sold units, while selling for $200, we'll discuss about 'falling demand'. Untill then, just suck it up and realize that PS3 will be just as much of a success as PS1 and PS2 were.

non need to get the xbox and GC into the equation. business is not about how much units you sell or how much more you sell with respect to the competition. It is about how much profit you make. If ps3 sells as much as the ps2 but costs (RD, fabs, etc) much more, end profits will be lower. You can have business when one competitor kills the competition and dies after that because of the amount of money he lost in the process.

Pana : i agree that Sony is doing what they NEED to do to survive. It is just that there is no proof that they will succeed (or fail). It is a very risky period for Sony.

[cybamerc]

The problem is that Sony's margins are a disgrace. The game business isn't doing as well as you could reasonably expect looking at Sony's dominance in the market. PS3 will be a significantly more expensive product than the PS2, both in R&D and production. If Sony "only" does as well with PS3 as it did with PS2 profits will be a lot lower or even non-existant. As far as Cell having other uses let's wait and see about that. It's not the first we've heard that kind of talk from Sony.

[Panajev2001a]

I think they have a very good chance of survival ( they are not panicking and cutting R&D even where it is needed ): they are doing exactly what they needed to do in a long while, which is restructure and optimize the parts of the group that were inefficient and losing money left and right ( like Sony Electronics and Sony Music ) this assuring thatb their main Semiconductor-heavy division was not deprived of the funding it needed.

Sony is indeed restructuring its whole Semiconductor business and it finally understood it is key to have high technology in that field for a comoany like Sony: that can lead to cheaper ( to manufacture ) monitors, cheaper Walkmans, cheaper DVD players, cheaper Blu-Ray players, cheaper Stereos while mantaing a high technological edge over competitors.

The key of restructuring is to take away from all the sub-divisions their local Semiconductor R&D ( in most companies it was basically competing with other sub-divisions and at the end of the day, judging how few ICs [~20%] are made in-house, they were pretty inefficient ) and they consolidated together: I will let you guess what sub-division seems to be on top of the Semiconductor food chain in the new consolidated scheme

It is the one who is making the PSP :P

SCE has made a lot of money with PSOne and PlayStation 2: you cannot fault Ken Kutaragi for Sony Electronics and other sub-divisions spending that profit left and right.

SCE is not losing money, even taking into account the profits margin drop: they are still in the black even with all the R&D investments they made.

The game business is not doing bad, it is difficult without a price cut, considering how fast PlayStation 2 has sold in the previous year's quarter due to a price cut, to sell the same amount of units.

The year is ot over though and they can tank in more profits with the Holidays coming up.

A good reason of the profit margins being so thin is that they are putting in advance PlayStation 3 R&D into the books: would you prefer to see high profit margins for SCE till 2005 then to see SCE dropping so far down in the Red to casue a shockwave between investors ?

Maybe you would, but I will give you the benefit of doubt cybamerc... even if you have not wasted once occasion to troll Sony in a long while.

CELL will have other uses ( else Sony corp. would have not granted SCE this kind of budget ), but what is most important is that the fabs which SCE will build ( 2 new ones: nagasaki #1 and Oita #2 [the latter one in conjunction with Toshiba] ) will not used only for SCE products, but they are part of the plan to increaae by a good amount the per year the percentage of in-house fabbed ICs ( which is again fundamental to a recovery for Sony in the long run )..

This is important because fabs are a very important key of the equation, not to say that they are also a very expensive part of the equation as well.

[_phil_]

Pana +3

PS3 will be a significantly more expensive product than the PS2, both in R&D and production

Above PS3 is the Cell project witch is a JOINT venture,a pretty big one,well larger than videogaming .We would expect to see Cell based products before PS3 arrives, to drive costs down more quickly.

[Vince]

Originally Posted by cybamerc

The problem is that Sony's margins are a disgrace.

Compared with who? Microsoft? They're still basically a brick-and-mortor manufacturing company that's underfire from noname Koreans and Chinese - what do you expect?

And then you have the ignorance to attack their movement to differentiate from this situation and become more than said brick-&-mortor company by a product like Cell.

You know, it would be alot easier to just say you hate them and, subsequently, they're f-ed. Because these two lines of reasoning are inheriently incompatable. You can't negativly attack them for their current manufacturing situation and then critisice them for trying to rise out of it by basically creating an infastructure that supports a virtual means to distribute their digital media. Which, is basically what Toshiba and Sony proper want it for.

As far as Cell having other uses let's wait and see about that. It's not the first we've heard that kind of talk from Sony.

Yes & No. Untill you ctually observe something yourself you can make this case about anything. But, there is ample evidence from Sony [eg. Their corperate reformation structure, Cell enormous investment by Sony Group (as opposed to SCE) Ando & Idei's comments, Tommy Mottola's firing, et al) aswell as Toshiba and IBM that seem to point that this is the real deal.

[Paul]

On a fundamental scale, many really don't get it. Alot of people obviously don't know what Cell is on any type of scale beyond the whole "Cell super computer" or Cell "Sharing power" bits.

Let me explain it. When Sony can stick Cell(an architecture) which Sony makes in house into all their products so they don't have to buy 8 billion in IC from another company they are going to do it. And this is exactly what COO Ando says what's going to happen. And it will save Sony billions per year.

Just because you have a Cell LSI inside a TV instead of one from another company doesn't mean that the TV and the Cell based DVD Player will be sharing power.

A Cell based DVD player doesn't give it any magic functions, nor does it give it the ability to magically output in 1080P. It simply means that there are Sony chips inside of it making it run instead of ones from another company in which Sony paid for.

So do yourself a favors and just give it up. When you understand why Cell is so crucial to the entire Sony group, why there are billions invested into it, and what Cell in multiple devices mean then come back.

[DeadmeatGA]

Let us freeze for a moment and sort out what CELL will do and what it won't do.

What CELL will do.

1. Run PSX1/PSX2/PSX3 games.
2. Possibly double as a room heater.

What CELL won't do.

1. Replace IBM mainframes.
2. Replace Itanium and Opteron.
3. Replace PC.
4. Replace supercomputers.
5. Power your TV set.
6. Power your DVD player.
7. Replace PocketPC/Palm
8. Make you a toast.
9. Make Matrix a reality.
10. Make Kutaragi Ken a lot of money.

[Vince]

Originally Posted by DeadmeatGA

Let us freeze for a moment and sort out what CELL will do and what it won't do.

What CELL will do.

1. Run PSX1/PSX2/PSX3 games.
2. Possibly double as a room heater.

What CELL won't do.

1. Replace IBM mainframes.
2. Replace Itanium and Opteron.
3. Replace PC.
4. Replace supercomputers.
5. Power your TV set.
6. Power your DVD player.
7. Replace PocketPC/Palm
8. Make you a toast.
9. Make Matrix a reality.
10. Make Kutaragi Ken a lot of money.

Quick... save this. It'll allow us to see how accurate he is because he claims his past preceeds him.

Oh, and Deadmeat - I suggest you educate this man. That is, after you first sue him and Philips for stealing your architectural ideas.

Philips isn't looking at Cell or any processing in their TVs, DVD players, PDAs or other Consumer Applications either

PS. Check out Slides 27 to 36. Also of note is pg21-23 of Cell, seems we're not the only ones looking at the patent. I particularly like the "'Cell' as universal CE processing element" title put there - kinda flies in the face of your comments my Demigodic friend.

[Vince]

Am I the only one who finds it so ironic it becomes funny that everything people like DeadmeatGA and Chappers bash about Cell and it's potential roles in the broadband/pervasive computing future is being followed and concurrently developed by every major electronics player?