Sony reports $279.4 million profit, no thanks to PS3

[UPDATE] Research and development costs for next-gen console cut into electronic giant's revenue; company predicts 6 million PS3s shipped by March 2007.

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First, the good news: Sony is profitable again, beating expectations with its most recent earnings report. For the quarter ending June 30, 2006, the electronics giant reported net income--what laypeople like to call "profit"--of 32.29 billion yen ($279.4 million). The figure was a massive improvement over the same quarter in 2005, which saw Sony take a 6.58 billion yen ($56.9 million) loss. The company credited its turnaround to strong sales of digital cameras and improved currency exchange rates.

Now, the bad news: Sony's financial gains were hindered by a big shortfall at its game division, Sony Computer Entertainment. The department saw a year-on-year decrease of 29.1 percent in revenue, dropping from 172.8 billion yen ($1.5 billion) to 122.5 billion yen ($1.06 billion). In turn, SCE's operating loss ballooned by 20.9 billion yen ($181 million), going from 5.9 billion yen ($51.1 million) to 26.8 billion yen ($232.1 million).

One factor in Sony's misfortunes was its current-gen platforms. The PlayStation Portable was a bright spot, seeing a year-on-year increase of 4.2 million units in quarterly software sales to 9.1 million units. However, PSP hardware sales were down a modest 70,000 units to 2.02 million units. Quarterly PlayStation 2 hardware sales fell much further, sinking nearly 1 million units to 2.54 million. Software for the console was also off, falling 2 million units to 33 million.

But while the PS2 and PSP's fortunes were mixed, they at least brought revenue into Sony's coffers. The same can't be said for the yet-to-be-released next-generation console, the PlayStation 3, which was, by Sony's own admission, a financial sinkhole. "The [quarterly financial SCE earnings] deterioration was due primarily to the recording of charges associated with the preparation of the launch of the PS3 platform, in addition to continued high research and development costs associated with PS3," said Sony in its earnings report. The company did not give specific financial figures for R&D costs for the PS3, which will ship worldwide in mid-November.

[UPDATE] But while (obviously) no PS3s are in the retail channel now, that will soon change. As part of its report, Sony repeated that it plans to ship 6 million units of the next-gen console during its current fiscal year, which ends on March 31, 2007. During that same period, the company says it will ship 10 to 11 million PS2s.

Sony's forecast added to analysts' resurgent optimism about the game industry. "We believe that the prevailing negative sentiment in the sector is beginning to wane somewhat ahead of the launches of Sony's PS3 and Nintendo's Wii," said Lazard Capital Markets senior researcher Colin Sebastian. "While a slowdown in current-generation product sales is still possible in [the second half of 2006] as consumers await the release of new hardware, we note there are a few offsetting tailwinds, including a stronger software release schedule and easing year-over-year growth comparisons."

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