Sony Computer Entertainment back in black

Sales of 4.9 million PS3s, 5.76 million PSPs give once-ailing game division record quarterly earnings of over $5 billion; analysts remain skeptical.

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Three months after posting an $841 million operating loss for its second fiscal quarter, Sony Computer Entertainment Inc. is back in the black. Today as part of its overall earnings report, Sony reported that its game division posted a profit during its third fiscal quarter, which ended on December 31, 2007. SCEI posted a ¥12.9 billion (around $121 million at today's exchange rate) profit on ¥581 billion ($5.45 billion) in revenue for the three-month period, up from a ¥54.2 billion ($508.9 million) loss on ¥442.8 billion ($4.16 billion) the year before.

SCEI's resurgence was in large part due to the PlayStation 3. Though the console's development and production costs had been draining Sony's coffers since 2006, the company now reports "a significant decrease in the operating losses of the PS3 business as a result of successful PS3 hardware cost reductions."

As a result, Sony made money on many of the 4.9 million PlayStation 3s it sold worldwide during the quarter, an increase of 3.24 million units from the same period the year prior, when the console launched in November. PS3 software was also up, rising 20.7 million units to 26.0 million units.

Unfortunately, the robust figures didn't keep the company from lowering its oft-vaunted 11 million-unit annual PS3 goal to 9.5 million. However, even that new figure wasn't enough for some analysts. "Sony had forecast 11 million units, while we forecasted 8.5 million units," said Pacific Crest Securities' Evan Wilson in a note this morning. "While Sony is confident in its new forecast...we remain skeptical of its target."

Today's report also touted the PlayStation Portable, which saw sales rise 1.05 million units year over year to hit 5.76 million for the quarter. As a result, Sony raised its sales estimate by 30 percent to 13 million for the year. The grass on the software side was not greener, however: The 18.3 million PSP games sold during the quarter were 3 million fewer than were sold than a year ago.

Unsurprisingly, Sony spun its Q3 numbers as the first of many profitable earnings reports. Wilson, though, still thinks the PS3 is not living up to its potential. "Sony appears to be trading the long-term success of the PS3 for a near-term profit," he said. "It is possible that it could meet its reduced target of 9.5 million PS3 unit shipments as retailers ramp inventory in fiscal Q4 (March) for the anticipated releases of Grand Theft Auto IV (April 29) and Metal Gear Solid 4 (June). However, we continue to believe that the primary barrier for PS3 is price, and until the console reaches a mass-market price point, its sales will struggle." Currently, the 40GB PS3 is $399 in the US, with the reportedly discontinued 80GB model selling for $499.

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