Sega profits down, Sammy earnings up

TOKYO--With Sega and Sammy's October 1 merger on the horizon, the two companies today jointly released their earnings reports. Sega announced that its net profit for the first fiscal quarter totaled 932 million yen ($8.35 million), a fall of 50.6 percent from the 1.889 billion yen ($16.9 million) it made during the same period last year. Sales fell 1.4 percent to 41.8 billion yen ($375 million) for the quarter.

In the console sector, Sega sold 290,000 more units of game software than expected, despite having released four fewer titles than it originally anticipated. Sega sold 520,000 units of game software in Japan and 400,000 units in Europe. However, price drops on the 650,000 games Sega sold in North America negated any gains. According to Sega, the average price of games in North America has dropped by about 25 percent during the past two years.

On the other hand, Sega's arcade-machine sales have been going smoothly in Japan. New games, such as the online arcade mahjong game Taisen Mahjong MJ2 sold well, and sales remained stable in America, Asia, and Europe. Sales in Sega's exisiting arcade franchises were also going smoothly, surpassing the company's original plans by 2 percent. But the opening of four new arcades cost the company around 2 billion yen ($17.9 million), contributing to Sega's large first-quarter profit drop.

Despite the first-quarter shortfall, Sega held on to its profit forecast for the year at 8 billion yen ($71.7 million) and sales at 204 billion yen ($1.83 billion). Many game companies dismiss the traditionally slow first fiscal quarter and look to the third quarter holidays to buoy sales and profits.

Sega's future partner fared much better. Sammy reported a first quarter profit, up by 629 percent from 2.94 billion yen ($26.3 million) last year to 21.42 billion yen ($192 million). Sales quadrupled from 27 billion yen ($242 million) to 109.7 billion yen ($977 million). The company states that the gradual economic recovery in Japan is leading to higher sales of its Pachi-slot pinball machines. In fact, Sammy shipped 189,000 units of Jissen Pachi-Slot Hisshouhou: Fist of the North Star in the first quarter alone.

Sega will be merging with Sammy in October under a newly established holding company, Sega Sammy Holdings. Once merged, Sega and Sammy's combined annual income for the fiscal year 2005 is expected to reach 501 billion yen ($4.5 billion), making it one of the biggest game companies in Japan. Under the terms of the deal, Sammy, which already owns nearly 25 percent of Sega, will exchange about 165 billion yen ($1.48 billion) of stock in the new company for Sega's remaining shares. Each share of Sammy will be swapped for one share of Sega Sammy Holdings, while each share of Sega will be swapped for 0.28 of a share. The deal will give current Sammy shareholders control of nearly three-quarters of the new company's voting stock.