Sony Financials Forecast: Bloomberg

[TheChefO]

Income is forecasted to be down to 84.1 billion yen ($691 million) for the quarter ended December 31, compared to a record 169.9 billion yen a year prior. Sales are expected to rise 9.6 percent to 3 trillion yen.

The games division is expected to lose a record 191.9 billion yen, compared to last year's 8.7 billion yen profit.

http://www.next-gen.biz/index.php?option=com_content&task=view&id=4625&Itemid=2

191.9 billion yen = $1.579 billion US

How is this possible?

Sony also loses $240 per 60GB PS3 and over $300 per 20GB PS3 sold, according to researcher iSuppli.

2 million units @ $240 per ps3 = $480 million
2 million units @ $300 per ps3 = $600 million

I fail to see how Sony could be losing this much money while still selling a very profitable ps2 console/games.

Did they lump sum the R&D for Cell and BR into this one quarter?

 

[inefficient]

Just wait a few more hours until Sony makes release official earnings report and estimates for 07

Until then it's just analyst speculation and should be taken with a grain of salt.

 

[Carl B]

http://www.next-gen.biz/index.php?option=com_content&task=view&id=4625&Itemid=2

191.9 billion yen = $1.579 billion US

How is this possible?

2 million units @ $240 per ps3 = $480 million
2 million units @ $300 per ps3 = $600 million

I fail to see how Sony could be losing this much money while still selling a very profitable ps2 console/games.

Did they lump sum the R&D for Cell and BR into this one quarter?

The very profitable PS2 has probably dulled that loss by quite a bit; remember, the console division loss was previously pegged by SCE during the last conference call at $2 billion for the quarter, so this is actually an improvement.

I think the real story of course is on the fact that even with that sort of massive quarterly loss on the horizon for gaming, the company itself is still overall profitable. Sony's come a long way in turning around their electronics division.

 

[TheChefO]

The very profitable PS2 has probably dulled that loss by quite a bit; remember, the console division loss was previously pegged by SCE during the last conference call at $2 billion for the quarter, so this is actually an improvement.

I think the real story of course is on the fact that even with that sort of massive quarterly loss on the horizon for gaming, the company itself is still overall profitable. Sony's come a long way in turning around their electronics division.

Indeed it is stark contrast to how the company has been relying on the games devision to keep them profitable and an impressive turnaround in that regard.

But how is it possible that they (the games division) would be posting a loss anywhere near this large?

 

[INKster]

I think it would have been even larger, if it wasn't for the good Bravia HDTV sales.

 

[Carl B]

I think it would have been even larger, if it wasn't for the good Bravia HDTV sales.

Inkster I think you're confused; what would have been larger? The profit?

I think we can all agree that the profit stems exactly from said Bravia sales. I know you meant the losses at gaming, but the TV sales don't factor into that at all.

But how is it possible that they (the games division) would be posting a loss anywhere near this large?

Possible due to the brute-force manner they decided to go about sourcing diodes (line expansion and throwing price/yields to the wind to meet the launch) and the decision to air ship everything. Things will even out rapidly - you shouldn't view it in a 'per console' loss for anything but the launch window.

 

[TheChefO]

Inkster I think you're confused; what would have been larger? The profit?

I think we can all agree that the profit stems exactly from said Bravia sales. I know you meant the losses at gaming, but the TV sales don't factor into that at all.



Possible due to the brute-force manner they decided to go about sourcing diodes (line expansion and throwing price/yields to the wind to meet the launch) and the decision to air ship everything. Things will even out rapidly - you shouldn't view it in a 'per console' loss for anything but the launch window.

So your take is it is due to inflated BR diode costs? (air freight couldn't possibly be that expensive)

I suppose we will have a much clearer picture with next quarter earnings forecast from Sony and the subsequent factual numbers.

But in order for the games division to have posted a loss that large for one quarter, the BR diodes would have had to add considerably more cost than even I-supply's numbers - especially considering this loss is offsetting ps2 profits.

 

[Carl B]

Don't worry about iSuppli - they don't know what they're talking about. (in the sense that some of their costs are too high, and some chips are left out entirely)

But yeah Blu-ray diodes, air freight (which is more expensive than you think), ~$100 price drop in Japan, a very large SCC chip in the PS3 that we didn't even suspect was included before... and then the usual marketing and launch expenses. It adds up! And I'm not saying it's not a ton of money either, but again though, it is better than Sony themselves had estimated a couple of months ago, which is a good thing for them.

 

[Acert93]

191.9 billion yen = $1.579 billion US

How is this possible?

That is actually better than predicted. Sony had altered division losses from 900M to 1.7B months ago.

2 million units @ $240 per ps3 = $480 million
2 million units @ $300 per ps3 = $600 million

I fail to see how Sony could be losing this much money while still selling a very profitable ps2 console/games.

You can start with advertising (TV, print, online, kiosk, etc), look at the PS network, and then from there I am sure you can start filling in other potential areas where Sony had some one time (or initially large) costs outside the physical manufacturing costs of the PS3.

But how is it possible that they (the games division) would be posting a loss anywhere near this large?

How is it possible MS posted a 1.26B loss for their games division for FY 2006 (ending in June 2006)? You look at the tail end of gravy Xbox game sales, Lives growth, and outrageous Xbox 360 software sales as well as limiting supply (i.e. MS didn't push out units at extreme cost when demand was really high early 2006) and yet they still realized staggering losses (like 800M more than the year before). Launches are very expensive.

 

[TheChefO]

How is it possible MS posted a 1.26B loss for their games division for FY 2006 (ending in June 2006)? You look at the tail end of gravy Xbox game sales, Lives growth, and outrageous Xbox 360 software sales as well as limiting supply (i.e. MS didn't push out units at extreme cost when demand was really high early 2006) and yet they still realized staggering losses (like 800M more than the year before). Launches are very expensive.

1.26 billion for 1 year (the launch year of xb360)

Xbox1 had horrible contracts and a built-in HDD. It cost significantly more than ps2 to make. Software sales on xbox are dwarfed by ps2 + psp sales.

Comparing:
-1.26b/yr /4 = .315b/qtr) ((xbox1 sales + xbox1 software) - xbox360 launch)
to
-1.57b/qtr ((ps2 sales + ps2 software + psp sales + psp software) - ps3 launch)

Does it paint a prettier picture?

_________________________

$500 million advertising
$500 million hardware losses ($250/ps3)
$50 million air freight ($50/ps3)
$520 million server infrastructure/kiosks?
-$0 profit for ps2/psp?

The numbers don't add up. They must be including some R&D.

 

[Carl B]

Chef-O you're reading way too much into it. R&D costs are paid every quarter for whatever R&D is done. Believe me, the majority of R&D for the PS3 is in the past, not in this most recent quarter. I think whatever the reasons are, if you're looking to determine the answer in the here and now, you'll find no answer truly gives an accurate snapshot of the situation; we simply don't know enough. But one thing is obvious - 360 had a higher accessory/title attach rate at launch, which helped to offset losses, and PS3 costs more to make to begin with.

And I really do have to reemphasize that Sony already stated a loss approaching $2 billion was to be expected this quarter in gaming - you just seem utterly floored by a news item that has been known for some time.

 

[Acert93]

And I really do have to reemphasize that Sony already stated a loss approaching $2 billion was to be expected this quarter in gaming - you just seem utterly floored by a news item that has been known for some time.

It is also fair to note that just as they predicted the loss they have also told investors to expect profitability by the end of the year.

 

[TheChefO]

you just seem utterly floored by a news item that has been known for some time.

Not at all - just trying to figure out how this number came to be, regardless of what it is.

You're right, we don't have an itemized breakdown of the division but this number doesn't seem to be within the realm of previously accepted costs.

It's great that they didn't post 2 billion in losses for the division but how much of that was from missing their production targets?

Just looking for clarification on these numbers that's all guys.

 

[borowki]

You can start with advertising (TV, print, online, kiosk, etc), look at the PS network, and then from there I am sure you can start filling in other potential areas where Sony had some one time (or initially large) costs outside the physical manufacturing costs of the PS3.

A lot of money probably went to retailers as well. Cost for co-promotional deals add up quickly when you consider the number of stores there are.

 

[tuna]

Chef-O you're reading way too much into it. R&D costs are paid every quarter for whatever R&D is done. Believe me, the majority of R&D for the PS3 is in the past, not in this most recent quarter. I think whatever the reasons are, if you're looking to determine the answer in the here and now, you'll find no answer truly gives an accurate snapshot of the situation; we simply don't know enough. But one thing is obvious - 360 had a higher accessory/title attach rate at launch, which helped to offset losses, and PS3 costs more to make to begin with.

And I really do have to reemphasize that Sony already stated a loss approaching $2 billion was to be expected this quarter in gaming - you just seem utterly floored by a news item that has been known for some time.

If something is a cost, it is accounted as a cost that quarter. If something is an investement, it is amortized through any number of years. You determine what is a cost and what is an investement based on the profit you want to show to the stock market (or your owners).

It would be better to look at the cash flow for the quarter to see how high the production cost was for the PS3 than any losses posted by SCE.

 

[mrcorbo]

Manufacturing costs may be higher than what you are allowing for considering they may have already had to acquire or produce components for the units that are currently in the process of being manufactureda and have yet to ship. And also units in the pipeline are all loss until they are sold to retail, making their loss per unit higher than the quoted $240/$300 per console.

 

[Lazy8s]

The past few years for the PS2, which should've been in the payoff part of its life cycle, have been very weak in earnings for a product with such marketshare.

The PS2 operation has not been so profitable.

 

[avaya]

Current PS3 losses – If I was betting on it, I would say R&D was expensed at completion (65nm@Nagasaki II is only just complete right?). PS2 and PSP both make a profit so to incur such a heavy loss is puzzling.

Another theory is the semiconductor catastrophe caused by Sony Shiroishi’s diode reactor failure causing the “millions†of stockpiled Cell’s (and who knows what else) to be kept in storage for such a long time – that is if you believe they had millions of Cell’s stockpiled. The earlier PS3 Cell’s are likely to have been not insignificantly more expensive than ones fabbed at present time.

The past few years for the PS2, which should've been in the payoff part of its life cycle, have been very weak in earnings for a product with such marketshare.

The PS2 operation has not been so profitable.

I wouldn’t describe it as weak outside of Japan, it’s been as expected – quite strong from the recoupment stage (2001 till present) of their capital investment.

However your point is a very important one I think. I was thinking about the same thing for the past week or so (one’s mind will wonder during accounting lectures). Ignoring these PS3 losses for the moment – we are essentially pissing in the wind without access to inventory, cash flow statements and detailed accounts – my point is have Sony concluded that the razor blade model is maybe fundamentally unsustainable?

PS2, despite its unprecedented dominance, is looking likely to give a very low return. I am unsure just how high its NPV would have been at the commissioning stage.

Here was the payback strategy:

They had a Y300bn (~$2bn) investment back in FY99, reported further deep losses in FY00 (similar if not worse than current PS3 losses) and only turned a profit in FY01. From this you can immediately see why they so desperately want 10yr product life-cycles. The current model demands longer time horizons in order to accrue the gains. However with such active competition in the market, anyone can force a new generation every 5 years.

 

[INKster]

Inkster I think you're confused; what would have been larger? The profit?

I think we can all agree that the profit stems exactly from said Bravia sales. I know you meant the losses at gaming, but the TV sales don't factor into that at all.

That's right.
Perhaps i was misinterpreted.
I meant to say that, if it wasn't for the high profits from the consumer LCD TV's and HDTV's from Sony, the losses would have been even greater.

In a way, Sony had this "umbrella", together with the exceptional year for Sony Pictures (3 billion+ in revenue) and the continued success of the PS2, to dampen the fall from the PS3 launch.
Even so, it wasn't enough for a full financial turnaround, so this gives us an idea of the tremendous losses related to that console alone.

 

[Carl B]

INKster I still think you're confused.

It doesn't make sense to say the "losses would have been greater," because there are no losses. If you want to say "the profits would have been smaller," *that* would make sense.