Sega of Japan Restructures

Sega of Japan announced on Friday a major restructuring initiative that it hopes will revive its profits. The company stated that although it would post a loss for the third straight year, it hopes to prepare for the future by creating separate companies from its R&D and AM groups in Japan.

Shoichiro Irimajiri, president of Sega, has announced that the company will now focus on software with a greater Internet focus. "Traditionally, we sold hardware. We sold software. And that was it," said Irimajiri. "We are now aiming to provide our services on the Net.... We aim to become a network entertainment kingdom." In addition, Irimajiri stated that the company plans to list Internet-related units in Japan and the US beginning in April.

Word of the restructuring plan hit the markets even before Sega's official announcement, and it drove Sega's shares up 13.8 percent to 2,680 yen (US$25).

Sega also announced an 18.58 billion yen (US$178 million) loss for the six months leading up to September 30 , but it blamed the loss on the marketing costs of the launch of the Dreamcast in North America and Europe. "I know there are some concerns in the market on the financial health of Sega," stated Isao Okawa, chairman of CSK, parent company of Sega. "CSK as a group is ready to give any support (to Sega)."

Sega of America seemed quite confident of its Japanese parent. "With this news, Sega Dreamcast consumers can look forward to expanded gameplay possibilities well into the future, as Sega continues to deliver the most advanced hardware, engaging software, game-enhancing peripherals, and Internet-focused content and communities," said Peter Moore, senior vice president of Sega of America.

With strong sales of its Dreamcast system in the US and European markets, Sega expects to sell two million consoles in the US and one million in Europe by March 31, 2000. Unfortunately, Sega has cut its forecast for sales of the Dreamcast in Japan to 1.6 million by March 2000, down from a previously announced two million.

Eiji Maeda, analyst at Daiwa Institute of Research, told Reuters that "The plan is a positive step for the company. Spin-offs will make the company more cost-conscious and speed up its decision making process." However, Reuters also mentioned that some analysts are weary of Sega's financial future, as the company has "over 80 billion yen in payments due next September on debts from the early 1990s."