NPD September 2004
- Thread starter Johnny Awesome
- Start date
Sony reflects R&D costs in all together, with Electronics taking up the biggest chunk, but with Game division R&D and everything else all rolled in. While it's gone up yearly, it tends to keep even percentage-wise to sales (going up just over 1% from 1998 to 2002), and is usually not mentioned specifically in divisional statements but instead addressed on its own elsewhere. For reference:
2002 - 433.2 billion yen
2001 - 416.7 billion
2000 - 394.5 billion
1999 - 375.3 billion
1998 - 318 billion
Also for reference, Game segment R&D went up between 2001 and 2002--from 34.2 to 48.2 billion yen--though they experienced a dramatic income jump (to the tune of 130 billion yen), so if you think R&D is a big factor of the Game segment loss for FY'01 (which encapsulated almost exactly PS2's first year), then...? FY'02 also experienced a notable increase in sales, but was experiencing a tighter margin than in the past five years (excluding the loss in FY'01), showing while they were hitting their stride they were not yet sprinting (and margin-wise, they would go up in 2003 and back down to nearly the same level in 2004--both years showing less sales than 2002.)
Kutaragi couldn't have been talking about "the entire PS2 business" because the costs are simply too hard to track, are spread out over too many years, and are way too complex to speak about quickly in a quick message to investors. If you're talking about the major R&D for EE and GS, those would all have been reflected in the preceeding years, which all posted good profits. FY'01 (and the end of FY'00) were production years--the major EE/GS R&D has been paid in years previous (just like the major CELL R&D has been accounted for in these past years), and the Game segment's R&D has not--in fact--gone down at all from '01 to '02, and doesn't appear to be a huge factor regardless (representing ~5% of the total sales most of the time). Capital Investment (in the physical production structure) typically represents 1-2x that of R&D in specific segment analysis, which again is not immense. (For those who are interested, all Advertising seems to stick close-to or just-under R&D costs across all of Sony, but I can't easily determent segment breakdown.)
Read what Kutaragi said again and keep in mind he is explaining the figures the financial reports represent, which means what is attributed to them for that year. In '01 they said "SCE reported a substantial operating loss for the year. This was due to start-up costs for the PS2 business and additional costs associated with delays in ramping up production of the semiconductors for PS2" (also keep in mind the "cost of the PS2" is the cost it takes to get to the consumer, not just the cost of hardware production) as well as mentioning poorer software sales and some of the typical dollar-to-yen loss. In '02 Kutaragi says specifically "Our success in reducing production costs has enabled PS2 hardware to become profitable in the latter half of the year under review." Every year since they also mention production savings--usually saying it's enough to keep up with price reductions--which is well and good. It shows that the PS2 hardware continues to remain profitable for them despite halving its price at this point from where it began (instead of causing loss for Nintendo currently and causing heavier losses for Microsoft as they drop).
But what were given specific prominence in talking about the specific Game segment loss in '01 and recovery in '02? Start-up costs, covering delays, and the ramping-up of production for PS2's innards... and then reducing production costs the next year. Now while I don't know if "PS2 hardware" also includes peripherals like memory cards, controllers, or whatnot, those are always sold at a profit, so it would only point to heavier costs on the PS2's end itself. "PS2 hardware" addressed specifically. And while that one comment certainly doesn't reflect the whole change--a huge software surge and other factors led to an overall 400 billion yen boost in sales--I can't think of any other real way to read his statement. It's specific in and of itself, and reading the finances removes the other "easy alternative" assumptions.
Gord takes an extremely simplistic look at the situation. He bundles the entire situation together from almost three years in (50 million units represents sales up to mid-January 2003) instead of breaking things down by year, he doesn't take a close look at R&D costs nor segment breakdowns, nor does he analyze what his off-the-cuff "Sony is making $120 per system" comment should but doesn't represent when looking at console sales and yearly breakdowns. While he is certainly correct in berating people for believing the "all consoles are sold at a loss" myth and believing the first random number tossed onto the barbie, he doesn't actually LOOK at Sony's financials in a meaningful-enough way.
Sony pulls a profit from PS2 hardware (and will continue to do so, I imagine) and has likely pulled beyond any losses incurred along the way, but the total cost of getting it to the consumer in the first year has to have incurred a loss. HAS TO. Otherwise, how else do you explain the figures for the Game segment specifically in FY'01?
(P.S. I certainly won't vouch for the infallability of the numbers I've quoted, but that's what I pulled from a lot of financial statements--too numerous to list--which can all be accessed from Sony's site. I will certainly re-adjust if some of my examination was wrong, but for now it seemed like a good chunk to absorb.
)
2002 - 433.2 billion yen
2001 - 416.7 billion
2000 - 394.5 billion
1999 - 375.3 billion
1998 - 318 billion
Also for reference, Game segment R&D went up between 2001 and 2002--from 34.2 to 48.2 billion yen--though they experienced a dramatic income jump (to the tune of 130 billion yen), so if you think R&D is a big factor of the Game segment loss for FY'01 (which encapsulated almost exactly PS2's first year), then...? FY'02 also experienced a notable increase in sales, but was experiencing a tighter margin than in the past five years (excluding the loss in FY'01), showing while they were hitting their stride they were not yet sprinting (and margin-wise, they would go up in 2003 and back down to nearly the same level in 2004--both years showing less sales than 2002.)
Kutaragi couldn't have been talking about "the entire PS2 business" because the costs are simply too hard to track, are spread out over too many years, and are way too complex to speak about quickly in a quick message to investors. If you're talking about the major R&D for EE and GS, those would all have been reflected in the preceeding years, which all posted good profits. FY'01 (and the end of FY'00) were production years--the major EE/GS R&D has been paid in years previous (just like the major CELL R&D has been accounted for in these past years), and the Game segment's R&D has not--in fact--gone down at all from '01 to '02, and doesn't appear to be a huge factor regardless (representing ~5% of the total sales most of the time). Capital Investment (in the physical production structure) typically represents 1-2x that of R&D in specific segment analysis, which again is not immense. (For those who are interested, all Advertising seems to stick close-to or just-under R&D costs across all of Sony, but I can't easily determent segment breakdown.)
Read what Kutaragi said again and keep in mind he is explaining the figures the financial reports represent, which means what is attributed to them for that year. In '01 they said "SCE reported a substantial operating loss for the year. This was due to start-up costs for the PS2 business and additional costs associated with delays in ramping up production of the semiconductors for PS2" (also keep in mind the "cost of the PS2" is the cost it takes to get to the consumer, not just the cost of hardware production) as well as mentioning poorer software sales and some of the typical dollar-to-yen loss. In '02 Kutaragi says specifically "Our success in reducing production costs has enabled PS2 hardware to become profitable in the latter half of the year under review." Every year since they also mention production savings--usually saying it's enough to keep up with price reductions--which is well and good. It shows that the PS2 hardware continues to remain profitable for them despite halving its price at this point from where it began (instead of causing loss for Nintendo currently and causing heavier losses for Microsoft as they drop).
But what were given specific prominence in talking about the specific Game segment loss in '01 and recovery in '02? Start-up costs, covering delays, and the ramping-up of production for PS2's innards... and then reducing production costs the next year. Now while I don't know if "PS2 hardware" also includes peripherals like memory cards, controllers, or whatnot, those are always sold at a profit, so it would only point to heavier costs on the PS2's end itself. "PS2 hardware" addressed specifically. And while that one comment certainly doesn't reflect the whole change--a huge software surge and other factors led to an overall 400 billion yen boost in sales--I can't think of any other real way to read his statement. It's specific in and of itself, and reading the finances removes the other "easy alternative" assumptions.
Where do you even minimally pull statements like this from when reading my comments? Where have I said the PS2 is not profitable from a hardware perspective? To borrow your own nomenclature, stop looking at it in such a "primitive way." The viability of hardware is measured over its lifespan, not by its first year. The PS2 has pulled a profit and remains profitable in spite of price reductions and is overall very worthwhile. But what else explains explains the Game segment's loss in '01 and climb in '02 but notable production costs? Do you think the PSOne was being sold at a loss instead? The software?
Gord takes an extremely simplistic look at the situation. He bundles the entire situation together from almost three years in (50 million units represents sales up to mid-January 2003) instead of breaking things down by year, he doesn't take a close look at R&D costs nor segment breakdowns, nor does he analyze what his off-the-cuff "Sony is making $120 per system" comment should but doesn't represent when looking at console sales and yearly breakdowns. While he is certainly correct in berating people for believing the "all consoles are sold at a loss" myth and believing the first random number tossed onto the barbie, he doesn't actually LOOK at Sony's financials in a meaningful-enough way.
Sony pulls a profit from PS2 hardware (and will continue to do so, I imagine) and has likely pulled beyond any losses incurred along the way, but the total cost of getting it to the consumer in the first year has to have incurred a loss. HAS TO. Otherwise, how else do you explain the figures for the Game segment specifically in FY'01?
(P.S. I certainly won't vouch for the infallability of the numbers I've quoted, but that's what I pulled from a lot of financial statements--too numerous to list--which can all be accessed from Sony's site. I will certainly re-adjust if some of my examination was wrong, but for now it seemed like a good chunk to absorb.
)Don't you forget one big thing?cthellis42 said:
Every year, SCE fabs build new lines in their fabs to proceed to the next stages in process shrink, which are big capital investments and R&D at the same time. It'd be immense enough for that year, considering how many PS2 they produce in a year.
Even Nintendo would say big "no" to your assumption for their consoles prior to GCQroach said:
To add some figures to my argument, please check out this article in 2000:
http://www.eetimes.com/story/OEG20000602S0064
This article covers the earlier plan of SCE to sell EE/GS to the outside of Sony, but as you know this plan basically failed though some may argue. (In PS3, SCE will tackle it with Cell.) SCE has to do those investments every year to catch up with the semiconductor majors. If it stops at somewhere in this non-stop race, it'll slip off immediately.
MS as the Xbox maker and Dell and all other PC vendors, plus buyers of flash memory made in older lines in Intel fabs, all share Intel's investments in R&D and building fab lines, so MS doesn't have to be charged for entire cost of developing Celeron. But there are still middle-men between MS and silicon.
For Nintendo the situation is worse, for NEC had to build dedicated lines for GC which turned out later as underachieved. Nintendo compensates it with huge software profit and strict royalties (and GBA). But true loser is NEC here.
http://www.eetimes.com/story/OEG20000602S0064
This article covers the earlier plan of SCE to sell EE/GS to the outside of Sony, but as you know this plan basically failed though some may argue. (In PS3, SCE will tackle it with Cell.) SCE has to do those investments every year to catch up with the semiconductor majors. If it stops at somewhere in this non-stop race, it'll slip off immediately.
MS as the Xbox maker and Dell and all other PC vendors, plus buyers of flash memory made in older lines in Intel fabs, all share Intel's investments in R&D and building fab lines, so MS doesn't have to be charged for entire cost of developing Celeron. But there are still middle-men between MS and silicon.
For Nintendo the situation is worse, for NEC had to build dedicated lines for GC which turned out later as underachieved. Nintendo compensates it with huge software profit and strict royalties (and GBA). But true loser is NEC here.
Sorry, but you're wrong. How long have you been following this market btw, because I don't think you have a good idea what the margins on consoles have been since the NES era. Like I said, consoles are typically sold at a loss, in favor of the money made back on software. THis includes nintendo with teh nes, snes, and n64.
Qroach said:
Can you give me what competitors Nintendo had when they released NES/Famicom? What pressure made Nintendo to sell Famicom at a loss? Could they assume they'd be able to offset loss in hardware by selling enough software when they released their first console?
They made Game Watch before Famicom, BTW.Qroach said:
Nintendo launched Family Computer (Famicom) in 1983 in Japan. When they released it, NEC didn't have a game console (They had PC).
Videogames available in Japan in 1983 (extracted from http://www.gantsu.co.jp/1983b.html ):
Cassette Vision (Epoch-sha): 13,500 yen
Cassette Vision Jr. (Epoch-sha): 9,980 yen
Family Computer/Famicom (Nintendo): 15,000 yen
Arcadia (Emerson Arcadia 2001, sold by Bandai): 9,800 yen
Intellevision (Mattel Intellevision, sold by Bandai): 24,800 yen
Kousokusen (GCE Vectrex, sold by Bandai): 54,800 yen
Pyuuta (Tomy): 59,800 yen
Pyuuta Jr. (Tomy): 19,800 yen
Atari 2800 (Atari): 24,800 yen
SC-3000 (SEGA): 29,800 yen
SC-1000 (SEGA): 15,000 yen
Odyssey2 (Philips Odyssey2, sold by Corton Trading): 29,800 yen
Max Machine (Commodore): 34,800 yen
Game Pasocom M5 (Takara): 49,800 yen
MyVision (Kanto-denshi): 19,800 yen
CreateVision (Cheryco): 54,000 yen
PV2000 (Casio): 29,800 yen
PV1000 (Casio): 14,800 yen
The exchange rate in 1983 was 1 US dollar = 237 yen.
You notice several companies had 2 consoles like Sega SC-3000 and SC-1000. Ones with higher price were more like hobbyist PCs, which had things like a keyboard, BASIC or drawing tool. It was the time of transition from personal computers to dedicated game consoles. But Nintendo was a newcomer, with experience in arcade and Game Watch for consumers. So they designed Famicom from the ground up to provide it with a reasonable price, enabling a user to play games found in arcade.
I asked "why at a loss?". Why couldn't Nintendo produce a console by using cheap parts and by restructuring its business/manufacturing process? I expected some factual source from you that explains how expensive Nintendo console for the mass market, but you don't have it, do you? And you seem confusing margin for shops with profit in a manufacturer. (Nintendo had been notorious for bullying retailers anyway
)In fact, those engineers and businessmen at Nintendo were not lazy bastards who venture on a gamble as you assume...
http://hem.passagen.se/master-g/pics/consoles/nes.htm
It states 13,000 yen for the final price, but the correct price is 14,800 yen. As you see it clearly shows Nintendo thought they could profit from selling hardware. It seems this text is picked up from some book, as you can see the more detailed (less typo) version in http://home.uchicago.edu/~thomas/xbox-history-nintendo-nes.html or a Japanese page http://www.geocities.co.jp/Playtown/4007/phy07.html
Family Computer was released in July, 1983 with 'Donkey Kong', 'Donkey Kong Jr.' and 'Popeye'. Pyuuta Jr. and SC-1000, found in the above list as cheaper consoles, were released in the very same month
Ugh. Not going to argue further, as there are just too many damn numbers, and too much assumption going on one way or another. (And too little knowledge about what costs get put where. I find almost any investment into anything marked "semiconductor" to go through the Electronics segment, not Game.) But for reference, I did find one set of facts interesting since it bears much relation onto exactly what we're talking about:
With respect to capital expenditures by business segment...expenditures in the Game segment decreased by 60.3 billion yen, or 55.8 percent, to 47.8 billion yen, primarily due to lower expenditures for mass production of semiconductors.
That at least lets us see about what they were spending in '01 and '02 on semiconductors in Game specifically, and how much of a difference cost reductions made. Most other expenses went up from '01 to '02 as well (R&D, management, inventory, et al) but stayed basically in the same proportion to sales.
With respect to capital expenditures by business segment...expenditures in the Game segment decreased by 60.3 billion yen, or 55.8 percent, to 47.8 billion yen, primarily due to lower expenditures for mass production of semiconductors.
That at least lets us see about what they were spending in '01 and '02 on semiconductors in Game specifically, and how much of a difference cost reductions made. Most other expenses went up from '01 to '02 as well (R&D, management, inventory, et al) but stayed basically in the same proportion to sales.
You said Nes/famicom, and now you're trying to only use "only" the famicom in your example. Well forget it. i was talking about the NES mainly so let's stick to north america.
Don't try and use an exchange rate to figure out it's price in north america. That simple isn't a good practice as nintendo doesn't usually charge the exact exchange rate. They almost always add to it. Also in north america nintendo didn't release the NES by themselves. They went through mattle for distribution the first couple of years and this did cost them.
...and I said competition! What other reasons could there have been?
What and you have posted factual sources? No you haven't. Regardless, some interesting links there, but this doesn't disprove anything. You have no idea where these people got thier numbers posted. For all you know they made it up.
It's common knowledge as I said for console manufacturers to sell hardware at a loss early in the liife of the console. This is common knowledge, yet you're trying to disprove it with sony and the PS2 for some odd reason. I'm not going to argue with someone that simply won't listen ot anyone. Margins for shops is a direct relation to margins for manufacturing. Nintendo didn't bully anyone until they became a hot commodity years into it's life. Infact, all you posted doesn't disprove anything related to the Snes, Virtual boy, N64, or Gamecube. Or that it wasn't common proactice for manufacturers to lose money on hardware. At some point this became the norm.
http://www.sec.gov/Archives/edgar/data/313838/000095010902003508/d20f.htm#due to lower expenditures
Wow a massive sec.gov document Nice find indeed.
Really? Anyway, the 'Semiconductors sales' means those toward non-Sony companies, products such as CCD for cameras or audio processing LSI for audio equipments.
Following the 2000-2006 investment described above, SCE and Sony announced in 2003 that they would invest 200 billion yen (2 billion dollars) in 65nm process factories (for Cell) in 2003-2005, so the prediction (100 billion yen) missed it.
BTW...
Wow a massive sec.gov document
Nice find indeed. cthellis42 said:
Really? Anyway, the 'Semiconductors sales' means those toward non-Sony companies, products such as CCD for cameras or audio processing LSI for audio equipments.
Following the 2000-2006 investment described above, SCE and Sony announced in 2003 that they would invest 200 billion yen (2 billion dollars) in 65nm process factories (for Cell) in 2003-2005, so the prediction (100 billion yen) missed it.
BTW...
Qroach said:
What's wrong with that? Technically, when they started to sell NES in the U.S. in 1985, they had an abundant stock of Ricoh RP2A03 custom 6502 CPU for Famicom already, so you can't quote it as "hardware at a loss" example as they could procure cheap parts more easily.
NES had games bundled on launch, so you may think it as a "loss" if you like. Famicom (and all other consoles in Japan) didn't have bundled games, except for limited releases.Only when the competition is too harsh they'd sell things at a loss. Have you seen the list above with those prices and the 9,800 yen goal of Famicom? Famicom had advantage to competition by its superior spec too, so why at a loss? Again, for the NES, it had great software library already at the launch.
Enough of your 'common' knowledge already
Could you cite something at least, if not a detailed financial report by an insider?By 'direct', I don't get what you mean. Is there any regulation by the law?
LMAO. Who first included NES in the post above? It's you. So I googled around things about it. You want me to do it again for Virtual Boy!?
You know, VB didn't have fuckin competitors at all except for the budget of consumers A loss is a loss. If the cost of adding the cart along with other factors caused a loss, then it's still a valid loss! outside of japan nintendo had to pay for shipping (over seas) and distribution costs(using mattel). I'm sure that factored into the price somewhere.
I asked you what other reason could there have been? perhaps if the console wasn't selling well? That's a valid reason, isn't it? perhaps if you need to provide incentive with extra controllers and games, that could add up to a loss.
Did you read your article? they didn't achieve the goal of 9800 yen. Also where are these people getting thier numbers from? It's not hard to find numbers somewhere that will support just about any opinion, which is why I used words like "typically" in my post.
Like I said in my first post. If you've been following consoles for a long time, you would have seen this stated before. You're not citing detailed financial reports by insiders with regards to the NES, so why should I? I also do see that you're disproving what I said abotu it being commong practice by ONLY using the nes as a example
Manufacturing costs factor into the price at retail and the suggested retail price.
hey I said it goes back to the nes days and I'm certain it does. Nothing you've posted has really proved anything to me at all. regardless, my original statement was more wide reaching.
Qroach said:
Haven't you seen the exchange rate in 1983 I posted? 8)
I see you didn't read the article. Yamauchi, strictly from business point of view, set the retail price goal at 9,800 yen before making the hardware spec. Engineers could make a hardware which costed something like 9,800 yen or below, as the article didn't touch how the actual hardware costed, except for 2,000 yen for a CPU. Since they judged they could sell it at 14,800 yen watching competitors, they did. No loss.
C'mon, this is the b3d forum and I'm having fun in this game. If you don't believe anything on the net it's OK, neither do I can believe what you write here on the net
Who suggests the suggested retail price? Mario?
Like I said, I was using the information readily available on Sony's Investor Relations site. They have a number of SEC filings there--which I find to be of greater value for specifics.one said:Wow a massive sec.gov document
Really? Anyway, the 'Semiconductors sales' means those toward non-Sony companies, products such as CCD for cameras or audio processing LSI for audio equipments.[/quote]cthellis42 said:
I mean plant-wise as well. The Kokobu site you mention is labelled "semiconductor," and purchases from Oita TS are covered as well. (56.5 billion in 2001; 52.7 billion in 2002. I imagine this is where the cost savings shows up most, as 2002 purchases go down even through they must have been purchasing in a much higher volume.) I cannot be absolutely certain, as investment information is not that well quantified or labelled. But for the most part it seems things noted "semiconductor" fall under the Electronics segment (which covers by far the total R&D of the company, and must have for the internal plants aimed at PS2 production since they could be reconditioned later on as well, since the Game segment's R&D has remained very low, and is not a factor in the 2001 and 2002 performance difference.) Purchaes OF semiconductors, however, are handled by the business that uses them.
I noted that. Of course that points to "more expense" in 2002 from such investment than 2001, since I can't find similar comments there. Which again leans more on the PS2's relative cost. Also note the Ericsson investment is not handled by the Game division, while the Square investment is since it belongs there specifically. So too it seems that "semiconductor" investment is handled through Electronics--though it may be that certain "line preparation" costs aimed solely at PS2 production may have been assigned to the Game segment. But plant creation and major refurbishment would seem to fall under Electronics' purvue.
