When local Sony Entertainment boss Michael Ephraim claimed recently that Sony would win the games war that is being fought out between Sony and Microsoft he should have consulted the balance sheets of the two Companies instead of his tea leaves.
These results have a way of shedding real light on the reality of the video game war that is being fought out between the two giants. They scrape away the rhetoric that tends to obscure the real picture on the ground. Sony, Nintendo and Microsoft all offered glimpses of the console battle with their recently reported results for the third calendar quarter.
Sony is in trouble. Its earnings plummeted 94 percent to $14.4 million because of costs related to its laptop battery recall. But it also reported a $369 million operating loss in its video game business because of start-up costs for the PlayStation 3. Sony’s game revenues decreased 20 percent to $1.4 billion from a year ago because of a decline in PlayStation Portable and PlayStation 2 sales, as well as a price cut on the PS 2. Sony sold 5 million PS 2s worldwide in the quarter and 3.89 million PSPs. Sony is sitting on a lot of inventory now related to PS 3 components. It’s nail-biting time in Tokyo. Sony has $4.7 billion in cash, and $3 billion in short-term debt and current long-term debt.
At Microsoft things are looking brighter. The company has $31.8 billion in cash. That’s a substantial war chest. Sales rose 70 percent in the Entertainment and Devices division, which includes games, to $1.03 billion in the quarter. The division cut its loss from $173 million a year ago to $96 million. Microsoft says it is on target to hit profitability by the fiscal year that ends June 30, 2008. That’s a long way away, but the company is making some progress.
On the bright side. Microsoft has more than 4 million Xbox Live subscribers worldwide and it plans on hitting 6 million by June 30. It will have 160 games out by the end of the year. In the U.S., Microsoft has sold 2.9 accessories per console and software sales are at 5.1 games per console. Those numbers probably don’t hold up worldwide. But I’m told that the attach rates and Xbox Live subscription numbers are ahead of plan. There is even some good news in Japan, since the limited edition run of Hironobu Sakaguchi’s Blue Dragon game – bundled with the Xbox 360 – sold out.
Microsoft has shipped more than 6 million consoles worldwide (3.6 million in North America, 1.7 million in Europe, and 700,000 in the rest of the world). This number is very revealing. It suggests that Microsoft has sold through less than 6 million and that shows it is behind on its goal of hitting 10 million consoles sold by the time Sony sells one (starting Nov. 17). Adam Holt, an analyst at JP Morgan, said in a note that sales were light and Microsoft seemed to be behind its goal.
By June 30, Microsoft is still targeting 13 million to 15 million consoles sold worldwide. But it’s going to be hard to hit the 10 million target soon. Microsoft has had a lot of luck in this round of the console wars. It executed an on-time launch. It had a big shortage of consoles through the spring, but Sony failed to execute and pushed back its launch. Why is there so much friction for Xbox 360 sales when Microsoft has the field all to itself?
Well, one explanation lies in Nintendo’s results for the six months ended Sept. 30. The folks in Kyoto sold more than 10 million Nintendo DS and DS Lite handhelds worldwide in the last six months, giving it a grand total of 26.8 million sold to date worldwide. The New Super Mario Bros. title sold more than 6.7 million copies worldwide. Nine DS titles sold more than 1 million units. The company is launching the Wii console on Nov. 19 in the U.S. and still expects to sell 4 million by the end of the year and 6 million worldwide by March 31. It expects to sell 17 million Wii titles by March 31.
Nintendo reported sales of $2.5 billion, up 69 percent from a year earlier. Net income was $458.6 million, up from a loss a year ago. Nintendo has $6.6 billion in cash. Nintendo is forecasting sales of $6.2 billion and profits of $843 million for the year ended March 31, 2007. The company boosted its prediction of annual sales of DS units from 17 million to 20 million units worldwide. Nintendo also increased its GameBoy Advance sales forecast from 2.5 million to 3.3 million units worldwide.
