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

[Shifty Geezer]

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.

No, but neither does cashing in on the PS brand. Sony's hardware decisions weren't, IMO, directed at securing the home download market, but were instead what they (Kutaragi) believed would make a good, desirable product that people would buy and would make them money in the long run and would establish BRD. But some of the huge losses are caused by including the HDD and the BRD drive and establishing a free network service and stuff - an investment.

I think Sony might have been better of partnering with Toshiba on the HD disc front...

Again, that doesn't really change the costs from being an investment. And they were sat around the table. I don't know the ins and outs. I think BRD secured victory quickly enough though that it wouldn't have made much difference. Including BRD would always have been expensive because the manufacturing was so new. The only way PS3 could have been cheaper is to have gone with DVD, and/or lose Cell. Both were risks. Life is full of risks...

 

[Carl B]

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?

I wanted to be more 'on this' yesterday but it was just too busy around here. I still haven't listened to the conference call and read through the financials, which I normally do for this, but the reason people note the aggregate losses is... well, for one simply score keeping and fanboyism of course... but why Sony would care is from a "never again" standpoint.

Absolutely the PS3 business is only ever as pertinent as its most recent quarter; if it starts making money then that is what Sony cares about and the past is the past. But come time for PS4 development and launch, that's when you are going to see the lessons from PS3 applied in a tangible way within Sony.

This quarter (the one we are presently in) will be the most important for the year of course, as it is for any consumer-oriented company. I expect that Sony will do well'ish from a sales standpoint, but the exchange rates are a beast they can't slay, and exchange rates have been absolutely cataclysmic on a dollar/yen basis.

 

[DuckThor Evil]

Absolutely the PS3 business is only ever as pertinent as its most recent quarter; if it starts making money then that is what Sony cares about and the past is the past.

If you look at an investment, then surely you add all the costs and cash flows the investment has caused and will cause and then you'll see whether the investment was worthwhile. Of course they will and should make the best out of the situation, but that doesn't mean that the past quarters aren't pertinent.

 

[Arwin]

EDIT: Oh and if the entire Sony group were to focus on pushing one "thing", what would that be ?

Software, without a doubt. Getting the most out of hardware depends more and more on software an all levels. Then develop this into a more fully integrated view of software, hardware and services. The potential is definitely there, but they need to realise it. If they can pick up on the software and services side of things, they can regain a market lead.

Noteworthy to point out is that in the latest consumer magazine's test of LCD tvs, Sony scored first, second and fourth, so they can still do it.

However, very strikingly, ALL televisions tested from any brand scored a rating of poor when it comes to useability. And that's software, software, software.

 

[Carl B]

If you look at an investment, then surely you add all the costs and cash flows the investment has caused and will cause and then you'll see whether the investment was worthwhile. Of course they will and should make the best out of the situation, but that doesn't mean that the past quarters aren't pertinent.

They're pertinent in the 'lesson learned' sense; Sony can't retroactively re-allocate of course, and they won't walk away from an effort with potential when viewed through today's lens even if when viewed viewed through yesterday's things look horrid.

 

[DuckThor Evil]

They're pertinent in the 'lesson learned' sense; Sony can't retroactively re-allocate of course, and they won't walk away from an effort with potential when viewed through today's lens even if when viewed viewed through yesterday's things look horrid.

Yes walking away now when things are starting to turn around would actually be the worst time to pull out. It's definitely worth it to keep things going. I was just pointing out that when the dust has settled and the PS3 business will be analysed, that every cost and income will be relevant in seeing whether it was worth it. In the case of PS3 it's a very complicated issue though, with Blu-ray and everything else.

I guess the PS3 could be seen as a strategic investment for the future that will not bring income itself, but instead help set up the company for a good position in the future. It's just that when compared to Xbox 1, this is happening in a completely different time frame within the console business. On overall it's slightly hard be positive on all this, especially when looking at the results so far, but yeah it looks like it'll get better.

 

[Carl B]

I was just pointing out that when the dust have settled and the PS3 business will be analysed, every cost and income will be relevant in seeing whether it was worth it.

Absolutely, but I don't think it will be analyzed to see if it was worth it so much as to see how to avoid repeating similar missteps. There can be no question that it won't have been worth it when viewed from an ROI angle.

 

[Silent_Buddha]

Absolutely, but I don't think it will be analyzed to see if it was worth it so much as to see how to avoid repeating similar missteps. There can be no question that it won't have been worth it when viewed from an ROI angle.

Agreed, and since noone in their wildest imaginings would expect Sony to drop the Playstation line, it's all about learning lessons from PS3's execution.

I'm predicting that Sony will go a little more conservative with the next iteration and not push as many new technologies. I think more than anything that came around to bite them in the rear this generation.

Regards,
SB

 

[corduroygt]

Sony expects the PS3 to be profitable in 2010, and more importantly we find out that the BOM for the PS3 is about 10-20% more than the sales price. This means the slim costs between $330 to $360 to make.

At a briefing today, Sony Chief Financial Officer Nobuyuki Oneda said of PlayStation 3 costs, "At present, the difference between sales and materials cost has been reduced to between 10 and 20%. Within the year, it could be in the single digits. We'll be able to reach profitability at some point in the next term."

http://www.andriasang.com/e/blog/2009/10/30/sony_ps3_profitability/

 

[Carl B]

I wouldn't think of it in dollar terms, but in aggregate terms.

 

[catisfit]

I'm predicting that Sony will go a little more conservative with the next iteration and not push as many new technologies.

I agree, I don't see there being a new disc format to push, and I'd fully expect them to leverage what they already have for the CPU - say 32 SPE Cell with a few modifications. I can't believe they didn't have the potential PS4 in mind when they embarked on Cell R&D - hence the roadmap.

Such an approach would make PS4 relatively cheap to bring to market (or to look at it another way, would spread the costs they've incurred so far on PS3 over two generations), without needing to skimp on performance, and also make use of the knowledge, tools and techniques developers have built up from working on PS3.

Having said that, I wouldn't completely rule out the PS4 being powered by nuclear fusion and costing £750 at launch

 

[catisfit]

Sony expects the PS3 to be profitable in 2010, and more importantly we find out that the BOM for the PS3 is about 10-20% more than the sales price. This means the slim costs between $330 to $360 to make.

http://www.andriasang.com/e/blog/2009/10/30/sony_ps3_profitability/

The price pre-cut was 33% higher than it is now, suggesting they were profitable before the price cut as well...?

 

[obonicus]

The price pre-cut was 33% higher than it is now, suggesting they were profitable before the price cut as well...?

They weren't selling Slims then, though.

 

[Carl B]

Such an approach would make PS4 relatively cheap to bring to market (or to look at it another way, would spread the costs they've incurred so far on PS3 over two generations), without needing to skimp on performance, and also make use of the knowledge, tools and techniques developers have built up from working on PS3.

Even still though, we don't know that Cell (or an evolution thereof) will carry over to the PS4. Remember Sony supposedly was conducting that developer survey a while back, and periodically there have been rumors of going to a different architecture. We'll see though.

 

[Gubbi]

Even still though, we don't know that Cell (or an evolution thereof) will carry over to the PS4. Remember Sony supposedly was conducting that developer survey a while back, and periodically there have been rumors of going to a different architecture. We'll see though.

I've suggested this before: They could always go the route of 8 SPEs and loads of regular cores. Backwards compatibility and more developer-friendly.

The cost sunk in PS3 will never be recovered. The dependence on blue lasers for the BluRay drive cost a bundle, both in initial BOM and in insufficient volume to compete with Microsoft early on, leaving PS3 to play catch up for the rest of this generation.

Then you have the debacle with the GPU. It is interesting to read media from three years ago, press reports of Sony using TSMC as a "second source" for RSX. That is putting positive spin on a very dire situation. The truth is that Sony's fabs had a costly upgrade to produce CELL, then sold to Toshiba for a song because it was under-utilized. Makes you wonder. Why second source when you have a half empty fab?

I'm guessing that RSX was such a late contingency solution that they didn't have time to transfer the RSX design to Sony's fab and that TSMC initially was the only source. That however is speculation on my part.

Notice, none of the above is down to execution problems, it is all because of bad design choices.

To sum up, PS3 has:
1. Cost Sony billions.
2. Finished Sony as a semiconductor company
3. Only managed to end up third of the three platforms.

No wonder Kuturagi were fired,

Cheers

 

[dobwal]

They weren't selling Slims then, though.

And I doubt that they can stick to the current price point indefinitely. At some point the $299 price point may be turn a profit on each console in 2010, but its doubtful, Sony will be able to stay there long enough to see huge returns.

 

[obonicus]

And I doubt that they can stick to the current price point indefinitely. At some point the $299 price point may be turn a profit on each console in 2010, but its doubtful, Sony will be able to stay there long enough to see huge returns.

I'm pretty sure they'd be happy just breaking even on the console itself, if they have to go to a lower price point.

 

[dobwal]

I'm pretty sure they'd be happy just breaking even on the console itself, if they have to go to a lower price point.

Im pretty sure they would be happy taking a slim loss on each unit. But given how far we are into the cycle, it doubtful that Sony can continue to cost reduce the PS3 at the pace exhibited so far. And given the PS3 is still at a price point thats fairly high ($300), there will be constant pressure to reduce that price further even moreso than the pace of price cutting of past.

Basically, its my belief Sony's ability to price reduce the PS3 won't be able to keep pace with the competitive pressure to reduce the PS3's retail price. Given that we haven't seen a real price cut for the 360 in awhile and Nintendo's limited success with the Wii's initial price cut, 2010 looks like prime time for a serious round of price cutting from both of Sony's competitors.

Sony been saying the same thing over the last three years. And given the circumstances, I don't really see anything changing.

 

[Crossbar]

To sum up, PS3 has:
...
2. Finished Sony as a semiconductor company

I guess you can blame the Ps3 for a lot of things, this however was something that would have happened with or without the PS3.

 

[SG79]

To sum up, PS3 has:
1. Cost Sony billions.
2. Finished Sony as a semiconductor company
3. Only managed to end up third of the three platforms.

No wonder Kuturagi were fired,

Cheers

You could look at it this way, and it is a defeat considering their massive lead last gen. Considering the much smaller gap between them and their closet competitor, they (under Hirai) did a great job getting out of the hole after the first year. The damages were severe enough that they'll only see profits from the thing (hopefully anyway) next year. The thing is still a trojan horse for BD and won them a format war. Even in these economic times, BD is the only bright point for Japanese CE companies; sales are on the rise, but not exactly skyrocketing.

I'm gonna nod with Crossbar. With or without the PS3, Sony wouldn't have remained a semiconductor company for long.

Lastly, I really don't think that Kutaragi can be blamed for every single thing that went wrong with the PS3. Sure, going over R&D budget for Cell and the whole mess with IBM and MS is on his shoulders, but I think the main offender, the BD drive was a company push. Kutaragi was a firm believer in digital distribution and openly criticized Sony for DRM and push of proprietary tech (not that BD is one).

http://en.wikipedia.org/wiki/Ken_Kutaragi#cite_note-4

Think about it. Unlike MS, Sony opted not to lock HDD's and gave consumers a choice to upgrade as they wish and there are no caps for developers. SCEI also was the first publisher to start publishing full fledged games on the PSN. Then there is the very light DRM that Sony isn't known for.