Sega News From Japan

Japan's Nikkei Weekly puts the bleak news about Sega's losses and plans for the US market in black and white.

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Japan's Nikkei Weekly, in its March 16, 1998, edition, covered the recent news from Sega Enterprises Ltd. Here is our translation of that dispatch:

The survival of the fittest has become clearer in the platform wars among makers of video game players.

Sega Enterprises Ltd. said last week that it will stop selling Saturn home video game equipment in the US. The brand is unlikely to prosper amid strong competition from rival machines produced by Nintendo Co. and Sony Computer Entertainment Inc.

Sega said it expects a parent net loss of 39 billion yen ($302 million) for the fiscal year that ends this month to clear off accumulated losses of about 40 billion yen in Sega of America Inc. The company predicts a consolidated net loss of 32.8 billion yen, compared with a previous forecast of 3 billion yen net profit.

For Sega, the largest manufacturer of commercial-use amusement equipment, it is the first such loss on both unconsolidated and consolidated bases since being listed on the Tokyo Stock Exchange in 1988.

FAILED STRATEGY"We believed that although we were losing money selling hardware, we could recover by selling new software. It worked in Japan, but it won't in the US," Sega president Shoichiro Irimajiri said at a press conference. "We have also failed to manage inventory adjustment. And in the US, we could not get good support from the US software makers."

The company predicts US shipments of Saturn machines in fiscal 1997 will drop more than 90 percent from the previous term to 100,000 units. In Japan, shipments in the current fiscal year will likely fall to 800,000 units, off a third from a year earlier.

In its streamlining process, the company already has shed some 100 workers at its US subsidiary, roughly a quarter of its employees, following a decision to scale down its operations amid sluggish American sales of Sega Saturn home game machines.

The US subsidiary was established in 1986 to handle sales of home video game machines and software in the US. While some 1.7 million machines have been shipped to date, the Sega Saturn has been badly outstripped by the rival 64-bit Nintendo 64, which had racked up over 6.7 million units shipped as of the end of last September.

Sega will post an extraordinary loss linked to its home game machine business for the third consecutive year, bringing the total to some 100 billion yen, according to company sources.

In the Japanese market, Sega's amusement-related business supports the company's profit. Sega has created three-dimensional virtual game machines for its amusement parks. The company introduced such rides at its Tokyo Joypolis video arcade amusement park in January. For car lovers, the company plans to introduce a virtual car race in September at its Kyoto Joypolis.

Other major hit products have also helped the company. Most video arcades also feature its Print Club, the photo-sticker booths popular among high school girls.

However, patronage of amusement parks and Print Clubs has topped off recently because of a dearth of hit arcade games and the booming popularity of home video game machines.

"Our 32-bit Saturn machines' users are hard-core game enthusiasts. But because of Saturn's characteristics, it is difficult for us to get regular users," said Irimajiri.

TIME TO RESETIt is time to reset our business," he added. "We had a hard time in the US, but we will learn from our mistakes. And I am sure that if we have good products, we can survive in the US market, where distributors have more power than makers."

Moreover, Irimajiri pointed out that foreign markets such as the rest of Asia still have much potential for expanding the amusement-related business outside of Japan.

"We will hit a recovery shot soon," Irimajiri emphasized. The US unit is now working toward the expected 1999 release of the next-generation home game machine under development with Microsoft Corp. The new machine features advanced image processing and networking capabilities, according to Sega.

In Japan, Sony's 32-bit PlayStation, which has the most game titles, has taken a clear market lead against superpower Nintendo and veteran Sega. Sega was outflanked as a result of a lack of game titles.

Shipments of PlayStations in Japan have reached 10.65 million units, with worldwide shipments totaling 30 million, according to industry sources. Nintendo 64's worldwide shipments have expanded to 11.5 million units, though its Japanese shipments have remained at 2.47 million.

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