Sony Earnings Report Q2 2009 (Gaming/PC/Network)

AlNom

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http://www.sony.net/SonyInfo/IR/financial/fr/09q2_sony.pdf

Network Products & Services (includes gaming and VAIO PC)
(Billions of yen)

Q2 2008
Sales and Operating Revenue 465.2
Operating Income (loss) (40.6)

Q2 2009

Sales and Operating Revenue 352.6
Operating Income (loss) (58.8)

Sales in the game business decreased year-on-year primarily as a result of the impact of the appreciation of the yen as well as a decrease in unit sales of PS2 hardware and software.
...

An operating loss of Y58.8 billion ($654 million) was recorded, a deterioration of Y18.2 billion year-on-year, mainly due to a deterioration in profitability in VAIO PCs and the game business.

In the game business, the deterioration in profitability was mainly due to a decrease in PS2 hardware and software unit sales, and the impact of the appreciation of the yen.
PS3
Q2 2008 2.4M units
Q2 2009 3.2M units

PSP
Q2 2008 3.2M units
Q2 2009 3.0M units

PS2
Q2 2008 2.5M units
Q2 2009 1.9M units
 
So some division of Sony is profitable.

Sony overall only lost 362 million USD.

But Network Products & Services lost 654 million USD. Sony attributes it mostly dues to decrease in PS2 hardware and software sales as well as decrease in profitability of the VAIO line.

Consumer products saw a 99 million USD profit. Down quite a lot year over year, but at least still showing a small profit.

B2B & disc manufacturing lost 27 million USD. BlueRay not yet paying off it appears. At least with regards to manufacturing.

Movies and Music almost balance out. Movies lost 71 million USD, while music profited 96 million USD.

Fianancial services showed a 364 million USD profit, huge gains there as they were losing money the prior year.

So Music and Financials up. Everything else down. They've already revised their projected fiscal year numbers up slightly. Forcasting a loss of only 60 billion yen rather than a loss of 110 billion yen.

Will be interesting to see how this next quarter goes as it's arguably the most important.

Regards,
SB
 
So some division of Sony is profitable.

Sony overall only lost 362 million USD.

SB
Well the number that was leaked two days was in fact the loss in sales and operating revenue, not the operating income. I guess the person who got the number got misled.
 
Japanese companies are really feeling the heat from the strong Yen nowadays. I dread to look at Panasonic's Q2.
 
Maybe someone with a better financial understanding can help me with this; I can't explain why, but I was under the impression that you do not continuously add up the costs of a product. I thought the slate was wiped clean on a fiscal year basis?

Of course, many are throwing out that the PS3 has now incurred losses of over 4.5 billion. Does that number even matter to Sony? Or does the fiscal year losses/profit matter only?

Does that even make sense?
 
Of course, many are throwing out that the PS3 has now incurred losses of over 4.5 billion. Does that number even matter to Sony? Or does the fiscal year losses/profit matter only?

I am sure someone cares about "product viability" in the big picture. It probably gets trumpeted here on forums more than elsewhere though due to the nature of the product/market and the hubub made in the past about other consoles and losses accumulated LTD.
 
Maybe someone with a better financial understanding can help me with this; I can't explain why, but I was under the impression that you do not continuously add up the costs of a product. I thought the slate was wiped clean on a fiscal year basis?

Of course, many are throwing out that the PS3 has now incurred losses of over 4.5 billion. Does that number even matter to Sony? Or does the fiscal year losses/profit matter only?

Does that even make sense?

Of course the number maters to sony. The ps3 is consantly loosing money and draggin gdown the rest of its divison.

But in the end if the rest of sony is profitable it wont mean much. Perhaps next gen they wont spend as much on the system or they wont keep as many games in First party development at a time.

Last gen everyone liked to point out ms's losses. Looks like sony may catch up or exceed them in the gaming division.
 
They credited lower PS2 sales for the loss which further goes to show that it's been the PS2 that has been masking the true PS3 losses since day 1. Looks like they decided to bleed for the sake of marketshare in the reported quarter. They could have gone with a conservative $50 cut and end with up better at fiscal reporting but their mindset seems to have shifted towards staying in the fight for marketshare and worrying about profits later.
 
Of course the number maters to sony. The ps3 is consantly loosing money and draggin gdown the rest of its divison.

But in the end if the rest of sony is profitable it wont mean much. Perhaps next gen they wont spend as much on the system or they wont keep as many games in First party development at a time.

Last gen everyone liked to point out ms's losses. Looks like sony may catch up or exceed them in the gaming division.

My question was, does the accumulated cost matter? Quarter-to-Quarter, year to year yes, if the costs are being reduced and offset, then I don't think it matters. So I am curious as to why many keep saying "it cost them 4+billion". Sure for the initial launch of a product but I don't think companies (accounting) care about the lifetime cost or do they? I am not sure if I am phrasing my question correctly.

Also, there are other products within the Network & Services group bringing the division down. It cannot be attributed to the PS3 alone.
 
My question was, does the accumulated cost matter? Quarter-to-Quarter, year to year yes, if the costs are being reduced and offset, then I don't think it matters.

As far as I know the PS3 business has posted loss in every quarter, there is only accumulated cost and it's very hard for Sony to turn the PS3 in to profit during it's entire lifetime.

edit: I haven't double checked that information though, but I'm sure someone will correct it, if needed.
 
As far as I know the PS3 business has posted loss in every quarter, there is only accumulated cost and it's very hard for Sony to turn the PS3 in to profit during it's entire lifetime.

edit: I haven't double checked that information though, but I'm sure someone will correct it, if needed.

Didn't Kaz Hirai say that as a platform PS3 has been making a gross profit since last fiscal year?
 
My question was, does the accumulated cost matter? Quarter-to-Quarter, year to year yes, if the costs are being reduced and offset, then I don't think it matters. So I am curious as to why many keep saying "it cost them 4+billion". Sure for the initial launch of a product but I don't think companies (accounting) care about the lifetime cost or do they? I am not sure if I am phrasing my question correctly.

Also, there are other products within the Network & Services group bringing the division down. It cannot be attributed to the PS3 alone.

It's a complex question. I'll respond similarly to how I responded to it when it was posed WRT to the Microsoft and their investment in XBOX. The money Sony have spent creating, maintaining and trying to grow the PS3 platform was spent in the hopes of creating a return on that investment. That return doesn't necessarily have to be in the form of profits as the PS3 owners represent a market into which Sony can then sell content. This market becomes the acquired asset that justifies the investment. Additionally there is the PS3's impact on Blu-ray adoption, which must be factored in to any assessment.

The criticism comes mostly from the fact that they turned a very profitable part of their business into a money-losing operation. It is very fair to ask if there was a different strategy that might have allowed them to achieve their desired results without the incredible costs (above and beyond just financial ones) that their actual strategy has accumulated and continues to accumulate.
 
Didn't Kaz Hirai say that as a platform PS3 has been making a gross profit since last fiscal year?

Yes he did say that and it might be true, however gross profit is not yet operating profit, it's actually pretty far from it, as there are lot's of expenses between them and I'm fairly certain that somewhere in between it goes to red. Imo if the PS3 business as a whole wasn't making gross profit after all this time, I would have to consider it as a major disaster.

The thing about the PS3 is that unlike the first Xbox it's role was not to get the foot in or establish an infrastructure for the future platforms, that was already built by the previous Playstations. PS3 should have been the fruit of the previous labour, but the crop hasn't been very good. Normally when you are in business you expect to get paid, if you make a loss you are essentially paying to be in the business, currently Sony is not getting much for their money. The HD format war victory is imo something they got out of it and it seems like the PS3 might be able to slowly turn things around enough that in the end the overall loss made with the system is going to be small enough to make their position worthwhile.

BTW Kaz also said this in the interview.

In retrospect, do you wish you had packed less into the PS3?

Had we done less, I think we'd have gotten into a situation where, especially with the way technology ramps up, it would have been very difficult for us to embark on a 10-year life cycle with this particular console.

Then why did Kutaragi had to go?

I think Hirai and Sony might change few things if they could go back in time and try to make the system in to something that could turn profit sooner, even if it meant less than the 10 year cycle.
 
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Thanks mrcorbo but I already understand all of that. I'm just failing to ask the correct question, lol.

You seem to think that there was a one time initial cost of PS3 and after it lauched the revenue they get starts to offset that initial cost, but that's not how it goes. In addition to that initial cost the PS3 business has made more loss every quarter even after the launch and thus those cumulated losses after the launch are on top of the initial costs that came from launching the system.

Now obviously if Sony is able to to turn profit in the future and thus starts to decrease that previously accumulated loss or even erase it completely then the situation will change and the investment looks better and then the initial loss doesn't matter that much.

Was that still off the mark?
 
Those US$4b+ are investments for future income, and operating losses due to poor sales (and poor economy). It's not toxic assets or writeoffs, but it is unclear whether they can earn all the investments and operating overhead back in PS3's lifetime. Would be interesting to see how they want to capitalize on their free PSN service. It's the only successful Sony network service to date (Think Sony CONNECT :p).

The B2B and disc division performed worse than last year, but is doing better compared to last quarter. Hopefully their Blu-ray strategy continues to grow.

The consumer product and cellphone divisions are problematic. They don't have a growth strategy per se, and no platform play like the above 2; just selling hardware products by brands that are increasingly hard to differentiate. Very little software and network services. They should think about using the advantages in NPS group, plus the content expertise in other divisions (I see the eBook dying a slow death here. Aino RemotePlay is focusing on the wrong thing also).

Music and movie is title-by-title, star-by-star, hard to say.

The Financial Services group is coming back thanks to the better economy.

EDIT: Oh and if the entire Sony group were to focus on pushing one "thing", what would that be ?
 
My question was, does the accumulated cost matter? Quarter-to-Quarter, year to year yes, if the costs are being reduced and offset, then I don't think it matters. So I am curious as to why many keep saying "it cost them 4+billion". Sure for the initial launch of a product but I don't think companies (accounting) care about the lifetime cost or do they? I am not sure if I am phrasing my question correctly.

Also, there are other products within the Network & Services group bringing the division down. It cannot be attributed to the PS3 alone.

Of course it matters , do you think shareholders and the heads of sony want to keep dumping money ? The playstation 3 which is the future of playstation is posting massive losses and the other systems are now very aged (ps2) or just never did well (psp) and can't mask it well any more.

If your running a busniess are you going to keep throwing money at a product that is loosing tons of money your not going to continue with it or if oyu do your going to look to reduce the losses as much as you can from the on set.

So next gen sony may not want to put out a system that is loosing money at the start or a system priced at $600 . Sony may not want to invest 40M (if thast the true number ) into a killzone type game for the system either.

I don't think means the end of the playstation , I just think it means alot of changes for the brand and thought process and that can be a very good thing. Look at the amazing system we got out of MS after the first system bombed.
 
The thing about the PS3 is that unlike the first Xbox it's role was not to get the foot in or establish an infrastructure for the future platforms, that was already built by the previous Playstations.
I disagree. The end-game was selling media, online preferably. Sony also wanted to establish BluRay. PS3 remains a foothold product IMO, establishing a download infrastructure that didn't exist at all with PS1 or PS2. If Sony had gone with just another games machine to profit from the groundwork laid with the PS brand, they could have released a far cheaper, simpler machine. And also, they didn't need to get payback from previous generations because those generations had seriously paid dividends already!

I don't think PS3 has gone according to plan, and Sony weren't expecting to shell out this much, but I think they were ready to invest heavily to secure a large slice of the download pie, similar in principle to the Xbox spearhead by MS.
 
I disagree. The end-game was selling media, online preferably. Sony also wanted to establish BluRay. PS3 remains a foothold product IMO, establishing a download infrastructure that didn't exist at all with PS1 or PS2. If Sony had gone with just another games machine to profit from the groundwork laid with the PS brand, they could have released a far cheaper, simpler machine. And also, they didn't need to get payback from previous generations because those generations had seriously paid dividends already!

I don't think PS3 has gone according to plan, and Sony weren't expecting to shell out this much, but I think they were ready to invest heavily to secure a large slice of the download pie, similar in principle to the Xbox spearhead by MS.

Valid points there, but a cheaper and simpler machine would have been enough to establish the download infrastructure and would have done it faster and more efficiently imo, PS2 with a HDD could do that, not saying that is what they should have done lol, but that goal does not require 600$ launch price and doing loss with that.

The Blu-ray thing is interesting and that book hasn't finished yet and I personally have mixed feelings about it. I really like Blu-ray movies on my projector, but maybe I would have liked more to see a bit more advanced GPU instead, it's hard to say. I think Sony might have been better of partnering with Toshiba on the HD disc front, that should have made things cheaper and ramping up the drive production faster and Sony still would have had a competitive advantage against MS there. Personally I don't mind that they pushed the envelope here and there as the machine is scratching my back just fine, I just hope it'll scratch Sony's back too, some of the decisions though seem to me like the nails have been cutted too much.
 
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