Sony says 05/06 profit up 68 pct, sees sharp fall on PS3

[yoshaw]

No this isn't how it looks like. I'm not posting this for the usual suspects to call bad on Sony at any given opportunity.

The sole reason I put this here is to ask you guys of what you think of the underlying possibilities with Sony openly admitting fall of profit. Yes, it could be the R&D n such but still give it a thought. Why would they do that?

I think it's because they are going to heavily subsidize the PS3 costs onto themselves when the PS3 ships the 1st year with 90nm parts. Probably that's why they're expecting losses upto 48% in the next term or whenever.

http://xs78.xs.to/pics/06174/ps3start.jpg.xs.jpg (http://xs.to/xs.php?h=xs78&d=06174&f=ps3start.jpg)

TOKYO (Reuters) - Sony Corp. (6758.T) posted a 68 percent rise in annual operating profit on Thursday on investment gains and robust sales of flat TVs, but forecast a sharp fall this year because of start-up costs for PlayStation 3 (PS3).

Sony has enjoyed gains on investments at its life insurance unit due to a rallying Japanese stock market, robust demand for its recently launched Bravia brand liquid crystal display (LCD) TVs, and a softer yen.

The electronics and entertainment conglomerate has also notched up healthy sales of its PlayStation Portable (PSP) handheld game console and Vaio PCs, helping offset tumbling demand for bulky traditional TVs and heavy restructuring costs.

But Sony expects its game division to rack up an operating loss of 100 billion yen ($871.6 million) this business year as it gears up to launch the PS3 in November, overshadowing an expected recovery by its core electronics unit.

"We believe that we can lower costs dramatically (on the PS3) through chip shrinkage and by cutting the number of parts but there is no way to avoid high costs in the first year," Sony Senior Vice President Takao Yuhara told a news conference.

Sony forecast group operating profit will fall 48 percent to 100 billion yen ($872 million) in 2006/07, well below the market consensus of 171.2 billion yen, the average figure from 19 analysts surveyed by Reuters Estimates.

The weak outlook comes despite a sharp drop in restructuring expenses, which were front-loaded in 2005/06 -- the first year of a revival plan under which the company set out to close several factories, sell assets and cut 10,000 jobs.

But the strong result could help underscore a growing view that Sony is on a recovery path, having clawed its way out of the hole it dug for itself by falling behind Apple Computer Inc. (AAPL.O) in portable music players and Sharp Corp. (6753.T) in LCD TVs.

Sony's operating profit came to 191.3 billion yen in the business year ended in March, up from 113.9 billion yen a year earlier. The result handily beat the market consensus of 130.8 billion yen and Sony's own forecast of 100 billion yen.

Sony has staged a comeback in flat-screen TVs, raising its global LCD TV market share to nearly 15 percent in the fourth quarter of 2005 from under 9 percent in the third, using panels made with partner Samsung Electronics Co. (005930.KS).

Those gains came mainly at the expense of Sharp, which did not have enough production capacity to meet demand and watched its market share slip to under 14 percent from 18 percent in the third quarter, according to research firm DisplaySearch.

Sony said it would aim to return its ailing TV division to a profit in the full year to next March. Previously it had only said it would look to return the unit to the black in the second half of the 2006/07 business year.

Shares of Sony rose 28 percent during the 2005/06 business year, underperforming Japan's electrical machinery index (.IELEC.T), which rallied 39 percent. Before the announcement, Sony's shares rose 0.67 percent to 6,030 yen.


http://www.washingtonpost.com/wp-dyn/content/article/2006/04/27/AR2006042700180.html

[VideoGame mania]

Well, I hope Sony will be succeed with the PS3 as they did with the PS2 and PS1.I'm sure the Ps3 will be priced reasonably to any consumer like $ 399.99 max

[kaphwan]

If they are predicting immense ps3-related losses, we know it's going to be sold at a very competitive price.

And if we all buy one, then the software sold will more than make up for what has been lost.

[xbdestroya]

I don't disagree with anything you said Yoshaw, except that I don't think any of the losses will be R&D related. The R&D going on right now - for the Playstation network and backwards compatability - is probably less than the previous expenditures in other areas of PS3 development, so I don't see it as being too likely a drag. Most of the R&D costs for PS3 were paid long ago.

I think that the losses are purely operational in nature, which certainly does point to heavy subsidization. But we already knew that would be the case though... If we wanted, we could try and estimate how many PS3's Sony will sell between now and the end of their next fiscal year, estimate the profits from PS2 and PSP, subtract those from the already significant projected losses, and try to come up with a 'per console' level of subsidization.

It'd be rough, fast and loose, and probably wrong... but along the right track.

[venomv]

It'd be rough, fast and loose, and probably wrong... but along the right track.

We should just wait for Merril Lynch, lol.

[LaLiLuLeLo]

launch consoles are sold at a loss. the more they sell, technically the more money they're losing selling them. The expect to ship and sell 6 million from november to next march. simple. consoles are sold at a loss until later in the life cycle. Next!

[DofD]

I don't really see any "underlying possibilities" with this announcement from Sony. It's normal practice for corporations to make public annoncements on profit/loss forcasts for the coming fiscal year. It is also to be expected that there would be significant losses from the PS3 startup. There's nothing really shocking there for investors. The improving outlooks from Sony's other business units, the ongoing restructuring is looking positive, better than expected profits from the last fiscal year, and expected production cost decreases for the PS3 (component reduction, size reductions) all pretty much offset any concerns.

The losses predicted due to PS3 start up would be from PS3 startup not from R&D. The R&D costs would have come into play a couple of years ago, would be amortized over several years and would be distributed across a number of divisions.

As for how much the PS3 will be subsidized, it is hard to say. But I would guestimate that the PS3's cost would be subsidized by about 30-40 percent, with that amount dropping as production costs decrease over the next two years.

[VG Aficionado]

If they are predicting immense ps3-related losses, we know it's going to be sold at a very competitive price.

And if we all buy one, then the software sold will more than make up for what has been lost.That's it. I believe I'm going to spend more money on PS3 games the first year than what I'm going to pay for the console. And that's assuming PS3 will cost 500 € (it won't) :eek2:

[RavenFox]

And they might also announce down the road that they will ship with a 65nm part. Dont drop your hopes yet.

[Viper]

Yoshaw, it's not unusual for any of the three companies to post their losses or even their expected losses. That's just business.

Anytime the average person with little business background reads into the figures of a major corporation, there is going to be lots of assuming and questions which is only natural.



I did notice a major issue with the article though. At one point they say operating loss and in another they say fall to specific level.

But Sony expects its game division to rack up an operating loss of 100 billion yen ($871.6 million)

Sony forecast group operating profit will fall 48 percent to 100 billion yen ($872 million)


So which is it, a fall to only $872 million in profit or $872 million in actual losses?


Or is it an incredible coincidence that the game division will lose $872 million but Sony as a whole will still earn $872 million?

[xbdestroya]

So which is it, a fall to only $872 million in profit or $872 million in actual losses?


Or is it an incredible coincidence that the game division will lose $872 million but Sony as a whole will still earn $872 million?

I think it's just coincidence.

[DofD]

Or is it an incredible coincidence that the game division will lose $872 million but Sony as a whole will still earn $872 million?

I would say that it's just coincidence that that two numbers are so close.

It's known that Sony's game division is hugely profitable for them. I wouldn't have thought that the game division would have been responsible for 48% of the operating profit for all of Sony though.

[xbdestroya]

Well if you look over their quarterly financials, you'll see that indeed the games division accounts for an incredibly outsized share of group profits relative to their percentage of revenues.

Anyway the 'larger story' at Sony is the bounceback in their consumer electronics division, and just in time as well in order to withstand the shock that PS3's launch will have on this years earnings.

[Domination]

Dang, I was going to post this, too. You guys are fast. :)

Sony cutting costs like this is no surprise. I told you, Sony is going all in on Blu Ray's success. If the PS3 fails to saturate the market, it could very well jeopardize the Blu Ray format in it, and believe me when I tell you this, that is worth more to them than the PS3 console. So I expect a lot of competitive action from their corner.

[Arnaud_M]

I think it's just coincidence.

I don't understand $$ jargon well, but is it possible that it is not a coincidence, but simply the fact that Sony will subsidize PS3 with the maximum amount allowed by their overall gain, and not more ?

Arnaud

[xbdestroya]

I don't understand $$ jargon well, but is it possible that it is not a coincidence, but simply the fact that Sony will subsidize PS3 with the maximum amount allowed by their overall gain, and not more ?

Arnaud


No what the article is saying is that Sony predicts they'll make roughly ~$800 million in profit next year, and that the games division will lose roughly $800 million. So if the games division was breaking even, then Sony would make ~$1.6 billion instead, and if Sony wanted to subsidize to the 'maximum,' then well they could have just poured another ~$800 million in subsidization into the gaming division. But divisions within a company don't often function that way, so although I think there's been a discussion between Stringer and Kutaragi green-lighting SCE to lose a ton with this launch, normally each individual division would strive for the highest reasonable level of financial performance. And obviously on launch of a new console, regardless of what discussions took place, one would expect losses for the year in order to set the ground for long-term gains.

Anyway I really think it's just coincidence. The divisions handed HQ their projections, and this is just what it add3d up to.

[Arnaud_M]

Thanks XB for the clarification, I see it clearly now. So, could we at least assert that, since PSP and PS2 are presumably profitable by now, the 800 mil$ loss will be completly (or near completly, give or take some small things here and there) attributable to PS3 ? Sony predicting 6 millions consoles for the fiscal year 2006-2007, that would mean that for each console they will AT LEAST lose 800 / 6 = 133$, and in reality probably more because PS2 and PSP profits will also be engulfed. But at least 133$ per console. Am I correct here ?

Arnaud

[xbdestroya]

Thanks XB for the clarification, I see it clearly now. So, could we at least assert that, since PSP and PS2 are presumably profitable by now, the 800 mil$ loss will be completly (or near completly, give or take some small things here and there) attributable to PS3 ? Sony predicting 6 millions consoles for the fiscal year 2006-2007, that would mean that for each console they will AT LEAST lose 800 / 6 = 133$, and in reality probably more because PS2 and PSP profits will also be engulfed. But at least 133$ per console. Am I correct here ?

Arnaud

Well there are of course other factors involved, but yeah that's the general idea of what we're looking at I imagine.

[Viper]

Arnaud, marketing will also be a sizable chunk. $50-100 million is very plausible.

[yoshaw]

Arnaud, marketing will also be a sizable chunk. $50-100 million is very plausible.

Very true. Although I'd remind that those figures were easily spent in the PS2 era. So we should expect a slight increase in marketing costs in the coming year. Something definitely above 100million since forms of marketing have exponentially increased over the last 2-3 years. For example, Internet, forum guerillas, viral'ing, Video podcasts sponsering, audio podcasts, new emerging markets like China, Australia, Newzealand, Middle-east and India. etc etc

[Viper]

True, I wasn't taking into account the global launch at all. That could easily triple the advertising costs I predicted.

$872m - $200m for advertising = $672m / 6 million consoles = $112 loss each.

The more that goes into the $872 loss, the less per console loss. Now if we knew what they expect in total revenue, we could better predict an actual price.

[Smokey]

It'd be rough, fast and loose, and probably wrong... but along the right track.
where do i sighn up :)

[player00]

Very true. Although I'd remind that those figures were easily spent in the PS2 era. So we should expect a slight increase in marketing costs in the coming year. Something definitely above 100million since forms of marketing have exponentially increased over the last 2-3 years. For example, Internet, forum guerillas, viral'ing, Video podcasts sponsering, audio podcasts, new emerging markets like China, Australia, Newzealand, Middle-east and India. etc etcThis is my first post here, and normally I wouldn't have posted but since I live in Australia, I'd like to point out that both Australia and New Zealand aren't new emerging markets, mainly because we're in the PAL region (read considered part of Europe).

Just because we're on the arse end of the world it doesn't mean we live in the stone ages. :-p

[xbdestroya]

LOL, welcome to the forum player00.

There's a couple of other Australians here, including one of the mods (StanDarsh), so I'm sure someone would've gotten around to correcting it. :smoke: That said though, go vote in this poll to help raise the international stats! http://forums.e-mpire.com/showthread.php?t=54580

[overclocked]

The huge amount of money in software development should also be included.
It sounds definately like 65nm Cell will come in same time as when chartered start shipping theirs to Microsoft. If volume production starts in december/januari we are likely to see ps3 with cells on 65nm in April/May, ie "next fiscal year".

[yoshaw]

This is my first post here, and normally I wouldn't have posted but since I live in Australia, I'd like to point out that both Australia and New Zealand aren't new emerging markets, mainly because we're in the PAL region (read considered part of Europe).

Just because we're on the arse end of the world it doesn't mean we live in the stone ages. :-p

Oops, no its not how I meant it. And MiddleEast, India are also in the PAL region. That doesn't mean they've become a part of Europe, now does it? :)

I strictly meant it in a business sense. As in these territories are now getting the full attention as was previously given to Japan, N.America and Europe. (see stories of Xbox360 seperate but dedicated launches(or planned launches) in Singapore, MiddleEast, Africa, China, Australia etc)

Well sort of not mentioning it prompted you to signup and reply so that's a plus ;) (Let me repwhore that out of Xb and other mods, hehe). But I'd definitely oppose your stoneage part of reply as you're unwillingly calling the rest of the countries I mentioned as stoneage. Which was obviously neither mine or your intention to begin with. So lets leave that behind.

In anycase, sorry for making you feel like that. Welcome to the board.

[Leedogg]

Wouldn't the sell of PS3 games, controllers, and accessories help them with the losses too?

[player00]

Oops, no its not how I meant it. And MiddleEast, India are also in the PAL region. Doesn't mean they are Europe, does it? I strictly meant it in a business sense. As in these territories are now getting the full attention as was previously given to Japan, N.America and Europe.

Well sort of not mentioning it prompted you to signup and reply so that's a plus . But I'd definitely oppose your stoneage part of reply as you're unwillingly calling the rest of the countries I mentioned as stoneage. Which was obviously neither mine or your intention to begin with. So lets leave that behind.

In anycase, sorry for making you feel like that. Welcome to the board.Apology accepted, yoshaw. :beer:

Back on-topic, if someone found out the game division's financial numbers, especially the revenue received from PS2 and PSP sales, and used those with the figures in the article, I'm sure they could be played with and a rough estimate on the PS3's launch price could be reached. Wishful thinking I know...

[yoshaw]

Apology accepted, yoshaw. :beer:

Just don't get too ahead of yourself n00b. :guns: :swear:

;) :beer: LOL

[venomv]

Wouldn't the sell of PS3 games, controllers, and accessories help them with the losses too?

That's the whole idea, but that brings up the question did they factor that into the -$872m number?

[Arnaud_M]

Most probably, it is already factored. It is the number for the whole games division, and controllers and such are probably produced by this division.

Arnaud

[Garfunkel]

any guesses how much sony could save by using 65nm instead of 90nm?

[venomv]

Once they get it going right it should cost the cost of the CELL in half, I think.