Sony's PlayStation 3 Expectations May Not Be Met

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Includes: DIS, MSFT, NTDOY, SNE
by: Mick Weinstein

Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):

HEARD ON THE STREET: Sony's Big Hopes For PlayStation 3 May Fall Short

  • Summary: Sony has high expectations for its new game console, PlayStation 3, due to be released in November. But competitors Microsoft (XBox 360) and Nintendo (Wii) pose formidable challenges that Sony may not overcome. Nintendo's machine has won over the all-important videogame critic crowd, in part because of its well-designed remote 'wand', and should be priced around $250 vs. the PS3 pricetag of $499-$599. Microsoft's console is about $200 cheaper as well, though it lacks the PS3' next-generation DVD player. Another issue is the relatively slow arrival of software for the PS3 ahead of its rollout. With profit from its gaming unit expected to contribute 30% of Sony's income in upcoming years, its failure to meet the high expectations could impact the stock significantly -- it's up about 24% in the past 12 months. Sony's P/E ratio of 37 is far above competitors', in large part due to enthusiasm for the PS3. If PS3 fails to win over the mainstream, that would also impact the BluRay DVD format in its battle against the rival HD-DVD format.
  • Comment on related stocks/ETFs: Nintendo (OTCPK:NTDOY) already dominated first half gaming sales in Japan and Steven Towns thinks they'll rule the day on the next gen consoles, since the PS3 is more expensive than most Japanese citizens' rent. BluRay backers who could be impacted by weak PS3 sales: Matsushita Corp. (NYSE:MC), News Corp. (NASDAQ:NWS) and Walt Disney (NYSE:DIS).

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