So far, the loss is as much as $3 billion, including $2.16 billion lost in 2007 and $1.16 billion lost this year. The $500- plus price tag for a PlayStation 3 is significantly lower than its production expenses. However, Sony is selling the product below cost in order to grab market share from competitors Microsoft (MSFT) and Nintendo (NTDOY).
Unfortunately, competition is likely to get more intense. According to one analyst, Microsoft may cut the price of its Xbox 360 Pro game console next week by $50 to roughly $300 at retail. If Microsoft does cut its price, Sony is likely to follow suit.
The joint venture is not producing the sales or profits needed.
Sony erickson issued a warning on Friday , June 27th that a slowdown in the mid-to-high-end phone segment would hurt profits and sales for the second quarter. The company gets more than a third of its sales from Western Europe, which is precisely where demand for its snazzy phones is slackening.
Sony Ericsson said it now expected to ship approximately 24.0 million phones during the second quarter, or up slightly from the first quarter. The firm expects quarterly gross margins to decline from last year, with pretax profit estimated to be "about break-even."
"This combination of lackluster volume growth and massive margin pressure reflects the maelstrom that Sony Ericsson’s high-end business has drifted into," said Tero Kuittinen, analyst with Global Crown Capital. He said that the company had nothing to match the developed-screen technology of rivals like Apple or Samsung, while it also had no buffer in emerging markets to offset a decline in Western consumer spending.
PlayStation 3 sales performance has lagged behind that of competitors. Initially, there were significant manufacturing issues due to a shortage of Blu-ray drives. It is estimated that Sony loses $300 per console sold, which the company hopes to recoup in software sales and promotion of its Blu-ray technology.
The Wii’s raging popularity is evidenced by its sales even in the middle of a recession filled with scared and depressed consumers. Apparently kids - and parents - can do without their Mattel (NYSE: MAT) Hotwheels and Barbies or their Nike (NYSE: NKE) AirMax, but the Wii goes in the necessity category with the groceries and gas money. Or, as Wedbush Morgan Securities analyst Michael Pachter puts it: “…the guys who buy hard-core games have no clue we’re in a recession.”
Just last month, Nintendo’s U.S. sales of Wii rose by 74% thanks to 753,000 new sets flying off the shelf. Those numbers once again landed the company solidly in the lead of fellow tech giants Microsoft Corp. (Nasdaq: MSFT) who sold 391,000 Xboxs and Sony Corp.’s (NYSE: SNE) comparably measly turnover of 276,000 PlayStation 3s.
According to Doug Creutz, an analyst with Cowen & Co. in San Francisco, “The industry continues to perform well despite the overall economic environment,” a claim easily proven by the numbers above… for Nintendo at least.
Sony is a different matter though. While it used to dominate the industry, consumer obsession with the Wii combined with the downturn are hurting the once powerful company, which suffered its fourth-straight month of falling U.S. sales for the PS3. That can also be attributed to the PS3 costing $150 more than the Wii and $200 more than the cheapest Xbox. Why pay more for something you want less?
At this point, answering that question won’t make much of a difference according to Creutz. “They’ve buried themselves so far behind both the Wii and Xbox 360 that even if they cut prices, there is no way they can catch up.”