The console upgrade cycle hasn't been smooth sailing for Sony (NYSE:SNE) and its PlayStation 3. Last week, the electronics giant announced it's cutting jobs in its European gaming division, and since then, there have been a lot of rumors and conjecture (and perhaps damage control?) related to what may or may not happen with the strategy for the PlayStation.
Word of Sony's restructuring in its European games division generated buzz, which the company later apparently denied, that similar job cuts could be forthcoming in Japan and the U.S. Even more interesting, a Financial Times interview with Sony President Ryoji Chubachi fired up the idea that a North American and Japanese price cut for the PlayStation 3 isn't out of the question, although there's word circulating that Sony has denied the idea.
Will it or won't it? I suppose a statement by such a high-ranking individual being contradicted by another company spokesperson could be a good example of the kind of damage control that's necessary when a company is so big that the left hand doesn't know what the right hand is doing. At any rate, I wouldn't be at all surprised if Sony ended up cutting the price on the PlayStation 3, whether it's currently being denied or not; given the fact that Sony has often denied certain rumored events that did indeed come to pass (the PS3 launch delay springs to mind), maybe it's a matter of "when," not "if." It's long been known the PS3 was a pricey machine, and rivals have been aggressive in their simpler, less expensive consoles. (Apparently Sony shouldn't have pooh-poohed the Wii.)
The timing's interesting, too, since Sony recently announced it's discontinuing its less expensive, low-end PS3 model so it can instead push the pricier high-end version. Recent data from NPD Group reveals the console wars are pretty bloody, and maybe in unexpected ways. In March, Nintendo's (OTC BB: NTDOY.PK) DS was No. 1, selling 508,000 units. Sony's PlayStation 2 sold 280,000. Nintendo's much-ballyhooed Wii came in third, with 259,000 units sold. Microsoft's (NASDAQ:MSFT) Xbox sold 199,000 consoles. Sony's PSP sold 180,000 units, and the PS3 was dead last, selling 130,000. It's not just that the PS3 is lagging -- it's also interesting that the last-gen PS2 is still outselling the brand-new version, despite all the hype.
A possible price cut for the high-end PS3 would certainly be of interest to investors, since most of us already know the PS3 costs more to manufacture than it brings in. Last quarter, the gaming division dragged down Sony's quarter. This was partially because the company cut the price on the PS3 in Japan right out of the gate, although at the time, the company also said that advertising and shipping costs for the PS3 could continue to be a drag on profits in the current quarter.
Sony reports its latest quarter in May, so it should be interesting to get a better idea of what's going on with the gaming division. At any rate, though, the battle's just begun for Sony, as it's forced to rethink rivals it previously underestimated, not to mention consumer preferences that appear to have been misinterpreted as well.
For related Foolishness, check out the following articles:
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Microsoft is a Motley Fool Inside Value recommendation.
Alyce Lomax does not own shares of any of the companies mentioned. The Fool's disclosure policy can throw balls of fire at its enemies.
