Sony slump sinks game stocks

Sony Corp. surprised the game industry this morning when it announced a 25 percent drop in its second-quarter profit. The electronics colossus also reduced its yearly operating profit forecast by 23 percent to 100 billion yen ($918 million) with a net profit forecast of 50 billion yen ($459 million).

Even more surprising was that Sony's games subsidiary, Sony Computer Entertainment, was one of the biggest reasons behind its stunted income.

SCE's sales fell 35.6 percent in Q2 2003, slashing the unit's profits 91 percent. The company cited research and development costs for their next-generation microprocessors as the main culprit, but also blamed sluggish PlayStation 2 sales in America. The one bright spot for the PS2 was Europe, where sales increased due to a competitive price drop, perhaps foreshadowing a similar move in the U.S. market.

Sony's Q2 report can be read via a PDF on Sony's investor-relations site. In Japan, Sony's stock closed down 5.04 percent to 3,960 yen ($36.13), ahead of the profit announcement, and fell further in after-hours trading.

Word of the reduced PS2 sales sent U.S. game publisher and sellers' stocks sliding as well. GameStop and EBgames' shares fell 2.17 and 4.83 percent, respectively, while Atari and Take Two dropped 3.2 and 4.24 percent, also respectively. THQ sunk 3.2 percent when Sony first announced the news, but had mostly recovered by press time.

However, it was Electronic Arts' parade that the Sony announcement really rained on. Late yesterday, the company had announced a both 53 percent increase in its quarterly profits and a forthcoming stock split. However, the Sony announcement pushed EA's stock down 3.72 percent to $98.05.

Ironically, EA's announcement contained further ill omens for Sony. The company slashed its PS2 software growth forecast to a range of 15 to 20 percent, a reduction of 10 percentage points. The company also reduced its estimates of 2003 North American PS2 console sales by 1 million, to 8 to 9 million units.