GO
Loading...

Sony Won't Cut PS3 Price to Spur Demand

Reuters
Friday, 6 Jul 2007 | 7:10 AM ET

Sony has no plans to cut the price of its PlayStation 3 (PS3) at present to pep up demand and counter surging sales of Nintendo's rival game console Wii, Sony's president said on Friday.

Sony President Ryoji Chubachi also said in an interview that operating profit margin at its mainstay electronics unit, which makes hot-selling Bravia LCD televisions and Cyber-shot digital cameras, was likely to exceed its 4% target for the current year to March 2008.

"At present we have no plans," Chubachi told Reuters when asked whether Sony had any plans to cut the PS3 price.

Sony has packed cutting-edge technology such as a Blu-ray high-definition optical disc player into the PS3, driving up production costs and making its retail price more than twice as expensive as the Wii.

The higher price tag and lack of attractive software titles have been cited as main reasons the PS3 has been trailing the Wii in sales, and analysts have been widely expecting Sony to soon slash the price to spur on demand.

In a Reuters poll of four game analysts this week, three expected Sony to cut PS3 prices by $100 by the end of the year, while one analyst said a cut of $150 is more likely.

The PS3, with a 60-gigabyte hard disk drive, carries a price tag of $599 in the United States, while the Wii sells for about $250.

"If you take a look at how PlayStation and PlayStation 2 have taken off, this is not such an unusual start," Chubachi said.

Complex for Developers

When the PS2 made its debut in 2000, Sony was initially criticised for lack of strong titles, and some software publishers said the machine was too complex to develop for.

Sony eventually overcame those difficulties and has sold more than 120 million PS2 units, making it the top-selling video game console ever.

In a sign of lack of confidence on the side of investors, however, Sony, which has sales eight times as big as Nintendo, was overtaken by the Kyoto-based company last week in market capitalization and bumped off the list of Japan's 10 most valuable companies.

Chubachi said the company was on track to hit its target of a 5% operating profit margin for the year to March 2008, and its electronics division will likely exceed the 4% target.

The margin targets, set in 2005, have been considered as the most visible indicator of success for turnaround efforts by Chief Executive Howard Stringer and Chubachi.

"We set the targets when the electronics division was not doing so well. But we saw some recovery in the unit, and it now can make a bigger contribution for Sony's effort to hit a 5% margin," Chubachi said.

Sony was late in shifting its resources to flat TVs, but an alliance with South Korea's Samsung in liquid crystal display (LCD) panel production and massive marketing campaigns helped the company become the world's largest LCD TV maker by revenues in 2006.

"There once was a time when Sony was classified as a member of the losing camp (in the electronics sector) ... But this is the final year of Sony's revival phase," Chubachi said.

"We will keep our eyes on the targets never to miss them."

Despite Chubachi's determination, there are nagging worries in the market that if it is forced to cut PS3 prices substantially to stir up demand, a larger-than-expected loss at the game unit could derail Sony's plan for the 5% margin.

Analysts, on average, expect Sony to post an operating profit margin of 4.9% for the current business year, according to Reuters Estimates.

Ahead of Chubachi's comments, shares in Sony closed up 1.2% at 6,540 yen, while the Tokyo stock market's electrical machinery index IELEC, which fell 0.79%.

Sony shares have gained 28% since the start of the year, outpacing the sub-index's 9% rise. The stock performance, however, is overshadowed by a 59 percent jump in Nintendo shares.

  Price   Change %Change
6758.T
---

Featured

Contact U.S. News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Don't Miss

U.S. Video