Sony's profits drop by a quarter as PS2 sales slow

Consumer electronics giant Sony has reported a 25 per cent drop in its quarterly profits, and predicts a 23 per cent fall in annual operating profit, partly due to falling hardware sales in the games division.

Sales in the games division fell 37 per cent during the quarter, a reflection of dropping sales of the PS2 this year - something which is partially due to an overall decline in shipments of the console, although a dock workers' strike in the USA and the incredibly strong quarterly performance in the same quarter last year do make this year's figures look worse.

Operating profits in the games division plummeted by 91 per cent however, mostly due to the rapidly mounting research and development costs of next generation hardware platforms such as the PSP and PS3.

The decline in sales of the PS2 is likely to be interpreted as a further sign that Sony's console has reached its peak in terms of shipments - with Europe being the only major territory where sales of the console continue to grow. The PS2 recently shipped its 60 millionth unit worldwide, giving it around three times the unit sales of its rivals from Microsoft and Nintendo combined.

Indeed, the industry's largest independent publisher certainly seems to believe that the PS2 has peaked - with Electronic Arts slashing its 2003 PS2 hardware sales forecast for North America by a million units this week, leaving the forecast in the range of 8 to 9 million units.

Tellingly, EA also cut its software growth estimate by ten per cent, and now expects growth in the range of 15 to 20 per cent - although the company did say that 2004 could be better than expected if Sony cuts the price of the PS2 during the year. Its original forecasts had assumed a cut from $199 to $149 at some point during 2003.

In terms of Sony's overall figures, the games division wasn't the only department being blamed for weak performance, with the movie division having produced a succession of expensive flops this year - most notably the Ben Affleck and Jennifer Lopez vehicle Gigli, which was universally panned on its release during the summer.

However, the electronics division of the company, which has been underperforming for some time and is the target of a three-year, $2.5 billion restructuring effort, surprised investors by recording better than expected profits, buoyed by strong demand for components for camera-equipped mobile phones.

The company now expects to record 100 billion Yen (â'¬775 million) operating profit for the full year, which ends in March, while its net profit estimate remains unchanged from previous projections at 50 billion Yen (â'¬388 million).

Sony's announcement sent ripples through both the games industry, with shares in many publishers falling following the announcement of the slow-down in PS2 shipments. Immediate reaction on the NASDAQ saw shares in EA falling 3.8 per cent despite the company's stellar financial results, while Take-Two, Atari and THQ also saw drops in their trading prices.