Sony's Bad Luck Continues: PS3 Launch Delayed in Europe, Tight Supply for Japan & US

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Blaming Faulty Part, Sony Scales Down World-Wide Launch of PlayStation 3

• Summary: How ironic is it that the same Blu-ray DVD technology that Sony wanted to push with the launch of its next generation PlayStation 3 game console is now the cause of a second delay, this time a four month delay for the game console's forthcoming launch in Europe and responsible for halving the initial available supply in Japan and the U.S. for the November launch? Sony's head of gaming Ken Kutaragi replies, "This became a typical result of not knowing what to expect with a brand-new component. This was a completely unexpected problem. There's nothing I can say except, 'I'm sorry.' " The delay in Europe and tight initial supply in Japan and the U.S. will further give Microsoft's Xbox 360 a chance to expand its user base, and it will benefit Nintendo's launch of its own next-generation console called Wii. Sony's problems don't end with gaming: its electronics division has high hopes of Blu-ray DVD besting rival advanced DVD technology HD-DVD as does its pictures division have an interest in seeing sales of DVDs pickup, and its semiconductor business has a stake in the console's Cell microchip, and of course there's the game publishing business that's affected as well.
• Comment on related stocks/ETFs: Positive for Microsoft (MSFT) and Nintendo (NTDOY.PK). Potentially negative for game developers such as Electronic Arts (ERTS) but the delay might have been expected and thus the ultimate impact is unknown. Mitsubishi UFJ Securities recently downgraded Sony (SNE) based on a heavily downward revised forecast of expected PS3 shipments. The MUFJ analyst seems to have been at least partially correct and could turn out to have made a perfect call if in fact Sony can't ship the six million units it expects to in the first year although Sony gaming chief Ken Kutaragi is standing by the six million unit shipment forecast. Sony has had a string of bad luck lately with the PS3 issues following the Dell (DELL) and Apple (AAPL) notebook PC battery recalls. In mid-August the editor of U.S. PlayStation Magazine said she decided to buy an Xbox 360 instead of waiting for a PS3, particularly criticizing the unit's $600 price tag and lack of interest in Blu-ray DVD technology. Still there may be some good news for Sony as it appears to be ahead of Microsoft's schedule last year by about a month in terms of getting development units of its next-gen console in developers' hands. And digital camera and LCD TV sales seem to be strong. See Sony's latest conference call transcript.