Sony Discusses its Game Business (SNE)

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From Sony Corp's (NYSE:SNE) conference call transcript:

For Game, the PS3 platform has been growing favorably worldwide. PS2 business also continues to perform well in sales, with a 31% increase compared to the previous year. Sales of hardware and accessories were approximately two thirds. The previous year was about 50%. On PS2 hardware in Europe and the United States, we continued to perform well. On top of that, the PS3 for all regions of Japan, the U.S. and Europe has grown favorably. It led to a significant total hardware increase. On PS2, the shipment volume was at the level of the previous year, so it exceeded a cumulative total of 100 million units for PS, with the largest home platform. PS3 at the end of March has exceeded worldwide shipments with a cumulative 17 million units. It is growing at a faster speed than other platforms.

In software, PS2 software sales have decreased, but on the other hand the software sales for PS3 contributed, so overall the sales have been relatively unchanged compared to the previous year. As for the operating income, the PSP platform globally has favorably grown, and PS2 business continued to perform well, so that the profit from the existing business surpassed the previous year, at over ¥60 billion. For year end expenses for the Game segment, mainly PS3 related expenses were recorded at over ¥50 billion. Therefore for operating income, there was an 80% decline compared to the previous year, to ¥8.7 billion.

The three main expenses are as follows: the reserve related to PS3 hardware, the second expense for PS3 business - the acceleration of investment for research and development, and thirdly for PS3, the tools for development have been updated, which is the main expense. On inventory, for all regions of Japan, U.S, and Europe, the PSP has been introduced as we said earlier, and there is a net increase in the inventory for this, the inventory was made for the campaigns for this spring. Next is the Playstation hardware production shipment volume and outlook as shown here, and also for software as indicated here, 250 million for the next period.

Then later on:

Question - (Unidentified)

Do you have a rather pessimistic estimate about the price, or do you have (inaudible factors?)


On the price, we cannot tell you anything here. But as was the case with PS2, at the very beginning, the cost at the time of startup is always great. Therefore, there will be a reduction in the future for the PS3. Out of the costs used for PS3, the measured on is the (LSX sale?), in other words the semiconductor. The semiconductor which is used now is 90 nano, that will be shrunk to 65 nano, with 40-45 nano in the future. This shrinkage plan does exist, and the number of parts will also be reduced. By 2007, there will be significant growth in volume and so that is another reason for the cost reduction. But at the initial phase, we have to bear with high cost. On cost price, there is a back margin. That may occur for the first model. For that reason, during Q4 we carried out a write-down.

Question - (Unidentified)

I have another point. So on the PS3, except for the upfront investment of the PSP and PS2, how do you look at profitability for the next fiscal year?


As for PS2 and PSP, we are not able to give solid figures. We do not think that there will be major growth and we do not expect major decline either.

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Tagged: , Electronic Equipment, Japan
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