PS3 costs drive Sony's Q2 profit downwards

[Shifty Geezer]

well if all other divisions are loss makers they need to sell off and focus on the working core of the company which in theis case would be SCE. Relatively simple way to satisfy the shareholders and to make the company healthy again. Sell off other "bad" parts to chineze/taiwanese who will be able to compete on cost in commodity markets, in a similar way IBM sold of HDD and PC divisions.

That's assuming they can't turn the bad parts good, which is what they hope with Cell and broader content distribution it seems. Sony grosses a large amount of cash, but just manages to spend as much too!

 

[Carl B]

According to IBM powerpoint presentation, CELL development cost = $400Million

Sony is investing additional $350M for development of 65nm CELL manufacturing process by IBM.

I think those later millions are to help - and have a stake in - IBM's East Fishkill 65nm line. Nagasaki is using a 65nm process developed jointly between Sony and Toshiba if I'm not mistaken, with IBM's SOI technology thrown into the mix.

 

[jvd]

Yeah MS can't afford to just charge whatever they want. I'm sure MS would want to sell their next-gen system at normal price for at least one year.

All other parts of ms make money. Ms has billions in the bank .

Sony only has one part that makes money and has long term debt .

Yet u feel sony can take losses on the system and ms can't afford too ?

Its actually in ms's favor to enter into a price war . The more money ms can make sony loose the longer it will take sony to make it back or turn even a profit . This will put sony into a very bad postion during the gen and the next gen .

But regardless ms has two skus . One is a cut down system and one has many of the things people are going to want . They can modify these skus or add to them at any time .

I.e when sony launches ms can move the core system to 200$ . They can create a gamer edition that comes with a wireless controller a hardrive and a head set for 300$ and then a 400$ version that comes with a bigger hardrive and perhaps 1 or 2 launch titles . There will be alot of casuals ready to buy at the 200$ mark and don't need to watch streaming movies on thier tv or the other features of the hardrive and when they are ready to upgrade to a hardrive ms will recoup some of the losses .


So i really think a price war is in ms's favor

 

[Carl B]

Games division isn't Sony's only profitable division. How can that rumor continue to persist? I mean for god's sake - ~$250 million in net profit when Games division pulled in ~$70 million this last quarter. That's some whacked out math to reach that conclusion.

Anyway obviously if they wanted to, MS could be the ultimate determiner of a price war outcome. But from their initial price points, that's not a game they're willing to play yet at least.

 

[EpicZero]

Games division isn't Sony's only profitable division. How can that rumor continue to persist? I mean for god's sake - ~$250 million in net profit when Games division pulled in ~$70 million this last quarter. That's some whacked out math to reach that conclusion.

Anyway obviously if they wanted to, MS could be the ultimate determiner of a price war outcome. But from their initial price points, that's not a game they're willing to play yet at least.

Last year, their movie division made over $500 million in profits. Their cellphone division (or joint venture) is profitable as well. Their financial arm (bank, insurance) are moneymakes too, I believe.

 

[Platon]

One think I ownder bout is not so much the price point they willintroduce their system with, but rather what they have said about not reducing the price in the same manner as they have done before and they will be selling the consoles at the launch price for much longer, with smaller price cuts that are far between.

Sure they will sell all the consoles they can produce at launch and near launch, but if I remember correctly most of the consoles are being sold when the price cuts start to happen. For example they are now selling the PS2 really cheap, and still making money, even enough to hide the huge investments they have been doing on the PS3 R&D.

What kind of effect will that have for them if they introduce the next PS at 400$ and keep that price much longer than ever before...

 

[Shifty Geezer]

If the console doesn't sell they will drop the price. No two ways about it.

 

[jvd]

Games division isn't Sony's only profitable division. How can that rumor continue to persist? I mean for god's sake - ~$250 million in net profit when Games division pulled in ~$70 million this last quarter. That's some whacked out math to reach that conclusion.

Anyway obviously if they wanted to, MS could be the ultimate determiner of a price war outcome. But from their initial price points, that's not a game they're willing to play yet at least.

what does thier initial price show ? It only shows no one else is in the market . By all acounts in most teritorys ms will have about a year diffrence between when they launch and the next system launchs . So thus they can charge a premium while they are the only next gen game in town. Loosing less money in the short term before they take larger losses entering a price war

 

[Carl B]

what does thier initial price show ? It only shows no one else is in the market . By all acounts in most teritorys ms will have about a year diffrence between when they launch and the next system launchs . So thus they can charge a premium while they are the only next gen game in town. Loosing less money in the short term before they take larger losses entering a price war

I'm not even arguing the console prices at all - just your claim that Sony only has one proftable division. I agree that Microsoft can milk the 360's price as long as it is the only game in town, and then lower it to - real(?) - levels once PS3 launches.

 

[jvd]

I'm not even arguing the console prices at all - just your claim that Sony only has one proftable division. I agree that Microsoft can milk the 360's price as long as it is the only game in town, and then lower it to - real(?) - levels once PS3 launches.

dunno about real lvls . I doubt we will see a price drop when sony launches in the states . It will be the holiday season and sony will mostl ikely have supply issues (as i'm sure they will sell out what they can ship ) and so ms in turn will sell well . I expect a price drop around that march . I really think they are going to drop the core to 200$ . I also think they will introduce a 40-60 gig drive as an upgrade giving those core users a used 20 gig option (as i personaly would trade in my 20 gig towards the price of a 40 or a 60 )

 

[Carl B]

Uh... wait, are we talking about Sony's profitable divisions, or something else?

Because I really am not trying to have a discussion hypothesizing the price drops of the 360. I would believe PS3 launch, Christmas of next year, or March of the following year, sure. Any and all seem reasonable and with arguments to be made on their behalf.

 

[Platon]

If the console doesn't sell they will drop the price. No two ways about it.

Yep no doubt, but what will that do to Sony economically? I mean after a certain loss there is no way they can make back the money. Look at MS this gen. They have been selling the console at a loss the whole generation, no matter how good the attach ratio of the games is, they will not be able to make their money back. Now I am not saying that Sony will be selling the console at a loss for the rest of this generation but this time around they might have to take much larger losses when selling the hardware than ever before...

 

[threepac3]

Yep no doubt, but what will that do to Sony economically? I mean after a certain loss there is no way they can make back the money. Look at MS this gen. They have been selling the console at a loss the whole generation, no matter how good the attach ratio of the games is, they will not be able to make their money back. Now I am not saying that Sony will be selling the console at a loss for the rest of this generation but this time around they might have to take much larger losses when selling the hardware than ever before...

Sony is risking a lot more then they ever have before with the Playstation Brand. Sony is trying to get the Cell some name recognition as to allow them to expand its use into many different and varying devices. Sony is also banking on PS3 making Blu-Ray a success, if these factors pan out for Sony they will make up for there R&D costs.

 

[Shifty Geezer]

Yep no doubt, but what will that do to Sony economically? I mean after a certain loss there is no way they can make back the money. Look at MS this gen. They have been selling the console at a loss the whole generation, no matter how good the attach ratio of the games is, they will not be able to make their money back. Now I am not saying that Sony will be selling the console at a loss for the rest of this generation but this time around they might have to take much larger losses when selling the hardware than ever before...

There's always lots of IFs. IF it doesn't sell as well, and Sony need to drop the price, then...um...they lose money! Such is business. You win some, you lose some. And if they lose billions they'll need to restructure the company, maybe sell some bits off. And if their Cell fabs are hit by an earthquake and wasted, that'll do them a nasty too

 

[jvd]

The only way the ps3 wont sell out is through a combo of things . Mainly really bad launch titles and to high of a price .

Of course sony can't just drop the price as they will loose face

 

[PARANOiA]

Shifty,

There are plenty of IFs. However, I think the point trying to be made is that Sony are in a much riskier position than ever before with the Playstation. Your sarcasm is noted, however I think you'd have to agree here that it's not going to be an easy win for PS3 this round.

 

[Johnny Awesome]

Personally I think Sony has enough brand power that MS can't quite go all out on a price war for fear of looking desparate. MS is better off matching price and using the extra money to fund franchises that will sway PS gamers to their console. If the Xbox ever achieves the same mindshare/branding that PS has, then MS can go in for the kill and lower pricing such that Sony can't afford to be in the business anymore.

That probably won't happen in this generation, mainly because Japanese studios are still going to favor the PS3 for development due to the fact that MS has no traction in Asia. That means that PS3 will have a few key franchises like MGS, FF, DMC etc... that should stop MS from dominating.

You also have to remember that Sony's 1st party division is still better than MS', until such time that MS can churn out more hits than just Halo, Fable and Project Gotham Racing. GT3, God of War, The Getaway, TM, Wipeout, R&C, J&D, Sly, etc... have all been pretty well established in the minds of gamers. Rare is the big wildcard. Can they bringout Kameo, PDZ, Banjo, etc... to rave reviews and fill all the holes in the 1st party lineup? That's why MS acquired them, but only time will tell...

 

[Carl B]

I don't think PS3 is all that risky. Putting the console war and the rest of it aside, assuming that PS3 ends up profitable for Sony this gen, that's all that really matters. If there were a chance that this gen ends up being unprofitable for Sony, well then that would be a risk. And of course that risk always exists, but I think the risk is relatively low for Sony. Stringer and the boardroom gang aren't there hoping for Games to pull them along - they want every division of Sony to be profitable and they'll be going ahead with their restructuring plans regardless.

Games exists in it's own little protected world, and Kutaragi - despite demotion - carries a lot of clout in that company. (and is still a rumored contendor to succeed Stringer, though the chances are lower now that it seems the Ohga faction has diminished clout)

 

[Johnny Awesome]

Sony certainly has more risk this generation. They can't afford to lose too much marketshare to MS. As soon as gamers are ambivalent between Xbox and PS, MS can force Sony into a price war they won't recover from. They have to protect their brand image above all else.

This will be harder this time than last time, because MS is pushing harder with things like better aesthetics, Xbox Live enhancements, Rare acquisition, funding for consistent studios like Bioware and Silicon Knights, Halo already established etc... It's almost inevitable that Sony will lose mind/marketshare, but the question is how much?

 

[PARANOiA]

Putting the console war and the rest of it aside, assuming that PS3 ends up profitable for Sony this gen, that's all that really matters.

That's the big debate though isn't it Nintendo were profitable last generation, but if the PS3 ended up being the Gamecube of next gen, I think many, many people would see it as a failure, even though it made money.
I think:

• Sony has to win in both the "mindset", as well as on the chequebook.
• MS has to win in mindset, chequebook is secondary (and can come once they dominate the market, eg Windows, Office, etc)
• Nintendo has to win in the chequebook, mindset is secondary.

That's one man's opinion of course. If you disagree I'd be interested to see why.