Sony: Profits Down in Q3

Sony Corporation’s net profit for FYQ2 (or CYQ3) totalled $14 million. In the same quarter last year Sony made a net profit of $240 million. The difference from last year is the 9.6 million batteries that have been recalled costing Sony $429 million. If you have been following the exploding battery pictures and videos, you already know that nearly all major notebook PC brands have issued a recall. Although sales rose in the quarter by 8% to $15.6 billion from $14 billion in CYQ3, Sony’s name is being kicked around in the dirt.

The gaming division reported a $366 million operating loss probably because of declining sales of the company’s PlayStation 2 gaming console in anticipation of the next generation PlayStation 3 that has been plagued by delay after delay. Also, I am not very upbeat about the price of the PS3, which will be almost twice the price of the PS2 when it first was introduced at $299. PS3 prices will hit $599. But, if the sales pitch and marketing is right, the Blu-Ray drive and the nice enclosure alone can easily be worth $599, but that is a completely different customer base Sony needs to try to reach with a gaming console. Sony plans to ship six million PS3 consoles by March 2007. R&D costs completely erased any profits from the game unit.

Another gaming device that is suffering is the PlayStation Portable. The PSP came out swinging with a very nice 4.3″ display with 480 x 272 resolution. It was one of the first wide displays on a portable device that small. Well, with only a few things to do on a PSP besides play games, it isn’t surprising the PSP’s sales, though still strong, has come down considerably. Sony reduced its shipment target for its PSP from 12 million to 9 million in FY2006 that began in March 2006 and ends in March 2007. In FY2005, Sony shipped 14 million PSPs. For the PSP to regain its momentum, Sony will need to pour some imagination or simply downright copy what Apple did to the iPod. The iPod’s momentum is still strong and that is a testament to Apple’s ingenuity. But Steve is Steve. On the other hand…

Howard Stringer is the CEO of Sony and it seems he will need to get a few things together before Sony can climb out of a very deep ditch. First of all, put quality back on the list of things to get right, especially batteries. Second, make sure to beef up production capabilities of all components, esp. the Blu-Ray drives that will be a pivotal component in not only the PS3 but almost everything Sony makes such as desktop computers, notebook computers, standalone players, portable players, etc.

I am looking forward to the first and second price drops for the PS3 and will bite at around $299.

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