PSP Shipments Decline 72%, Hurt Sony Q3 Earnings

The sharp rise in demand for high-definition televisions and steady uptick in digital cameras more than offset what would otherwise have been bad news for Sony Corp. yesterday, precipitated by its computer gaming division: Over the holiday quarter, the company shipped 71.7% fewer PlayStation Portable units and 23.3% fewer PlayStation 2 consoles worldwide than during the 2005 holiday season, while at the same time it was ramping up PlayStation 3 shipments to North America, Japan, and Asia.

Sony's PS3 shipment goals may have been adjusted once or twice, but the company finally did manage to ship 1.84 million units before the end of the year.

But those aren't sales, and as anyone in the book publishing business will tell you, you can't monetize based on what leaves your warehouse - especially when some of it could come right back. Sony's fiscal third quarter earnings report, released yesterday, shows clear signs of the same trend Microsoft warned about last week: a possible softening in global demand, specifically for video games.

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While it was an accepted fact that Sony would lose money on its initial PS3 sales, due to the high manufacturing cost relative to its suggested retail prices, the company had expected to offset some of that decline by moving the PS2 into the value market, reducing its price and turning up the promotional volume through mass retailers. But the PS2 campaign apparently fizzled; meanwhile, demand for the PSP appears to be collapsing, at a time when demand for the competing Nintendo DS portable appears strong and steady.

Booming consumer electronics sales in nearly all other categories indicates that the economy isn't the reason. One very real possibility is that the value proposition for PSP as an all-around consumer hi-tech gadget, rather than just a wireless joystick with a screen on it, may be deteriorating at the onset of prospects for newer and more enticing devices, such as the Apple iPhone.

A few weeks ago, Info-Tech Research senior analyst Carmi Levy told us the Apple iPhone and the PSP could be going head-to-head in the battle for consumers' mindshare, and that the Apple device may already have won.

"Feature-for-feature, clearly you can see that the iPhone is a very strong match-up to the PSP," Levy told BetaNews, "and certainly competes very well against the PSP, but I think the truth of the matter is that the PSP is already yesterday's news and is fading from the scene, whereas the iPhone is clearly tomorrow's news, and is very much a growth opportunity for the market going forward."

While it might not make sense that a communications device could be considered competitive against a gaming device, consider the fact that CE suppliers in all market categories are going after the same consumer, who has just one budget and one disposable income. Although the Apple iPhone isn't even available anywhere, its $500 price tag gives consumers something to want to save for.

"Considering how badly the PSP has stumbled in the market over the last 12 months, I would say the war is already won," Levy continued. "Unless Sony completely reinvents the platform and re-engages developers to once again support the platform -- because they have, for all intents and purposes, abandoned it -- Apple's going to steamroll them quite effectively."

As a Web surfing device, for example, the Apple iPhone provides what Levy calls a "less compromising experience" than the PSP.

"It's a full Web experience; the pages are not dumbed down, the iPhone does not force the end user to go through a convoluted browsing process. It's browsing the way we have all come to know browsing. So you can easily call up a Web site and interact with it; whereas the PSP is not quite as fully featured; a lot more advanced Web functions will not run on a PSP. You can't stream stuff onto a PSP as you can onto an iPhone. But the PSP is clearly an earlier generation device that defined the market then failed to exploit it; the iPhone is likely going to have a better time of it."

While revenue in Sony's games division actually rose 5.6% over the prior quarter, to USD$3.7 billion, the high cost of PS3 drove resulted in a net loss of USD$455 million for that quarter. That put a drag on Sony's overall numbers: With total corporate revenue up nearly 10% to $21.9 billion on the quarter, income decreased by an annual rate of nearly 15% to $1.5 billion. This while the Electronics division -- responsible for the Bravia upper-end brand -- reaped $1.5 billion, an increase of 102.8% over the prior year.

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