Sony's profit fell 68%

Sony today has reported a 68% drop in profit for the 2006-07 financial year. The gaming division, which is in charge of the development and ongoing support for the PS3, has reported a loss of over $1.9 billion.

We have known for months now that the PS3 is not selling as well as Sony has hoped. The report today confirmed the gloomy prediction. Sony has made 5.5 million PS3, well short of the 6 million target set. Out of the 5.5 million, only 3.9 million made it to the store. The remaining 1.9 million are in transit or sitting in Sony warehouses, mounting to as much as $1.1 billion in inventory. In comparison, Nintendo, which released the Wii at around the same time as PS3, has shipped 5.84 million units. Microsoft, which has a year head start, has 10 million XBox 360 en masse.

During the same period, Sony has shipped 14 million PS2 and 8 million PSP.

In lights of stiff competition, Sony had no choice but to discount the PS3 earlier than expected. The price of the 60GB model (now the one and only model) has been slashed. Merrill Lynch estimates the discounts would shave nearly $600 million off the division's sales. PSP also suffered the same fate in the face of the never ending popularity of Nintendo's DS, outselling it by a factor of 2 to 1.

Sony hopes to spur demand for their console and keep the third party games development companies from holding off their PS3 games development. Unlike Nintendo, a large amount of games on the PS3 and XBox are third party titles. As game companies pay licensing fees for the right to create game on the console, any games sold adds to Sony's bottom line.

With big name titles like Final Fantasy XIII, Metal Gear Solid 4 and Gran Turisumo 5 not coming out until next year, Sony hopes that major titles like Heavenly Swords, Warhawk, Lair and the upcoming Home will help sell the PS3 before then.

Source: Business Weekly