Sony's Two Billion Dollar PS3 R&D Loss

PS3 has cost Sony over £1.5 billion but it's not all bad news.

Posted by Staff
Sony's Two Billion Dollar PS3 R&D Loss
Sony's Form 20-F filing to the Securities and Exchange Commission (SEC) makes fascinating reading. The 20-F is the form non-U.S. companies use to file their Annual Reports to Shareholders.

A passage referring to the PlayStation 3 in the report - filed by Sony and audited by Price Waterhouse Coopers - reads, “...even if Sony is able to sufficiently recoup its investment, significant negative impact on Sony’s operating results could occur during the introductory period of the platform. Further, even if the platform is ultimately successful, it may take longer than expected to recoup the investment, resulting in a negative impact on Sony’s profitability.” (SPOnG's emboldening).

If the figures presented in the report are anything to go by, Sony has a lot to recoup from its “introductory period” for the PS3. The report goes on to state, “An example of such a significant negative impact during the introductory period of a platform are PS3-related charges that resulted in losses of 232.3 billion yen (£1.09 billion) and 124.5 billion yen (£586,741 million) within the Game segment for the fiscal years ended March 31, 2007 and 2008, respectively.”

There is, however, more to the report than R&D budgets. The hard stuff relates to Sony's sales figures in its games division for the fiscal year to March 31st 2008. We have highlighted areas of particular interest to SPOnG readers. These include the fact that Sony's reporting of hardware sales for the fiscal year 2008 has been changed from "production shipments to recorded sales" resulting in a 'restatement' of the 2007 sales figures - (we added 2007's figures in square brackets within the quoted text).

We've also noted sales increases in Europe and the USA in comparison to a decrease in Japan.

"Sales for the fiscal year ended March 31, 2008 increased by 267.5 billion yen, or 26.3 percent, to 1,284.2 billion yen compared with the previous fiscal year.

"An operating loss of 124.5 billion yen was recorded for the fiscal year ended March 31, 2008, which was a decrease of 107.8 billion yen from the fiscal year ended March 31, 2007.

"By region, although sales decreased slightly in Japan, there was an increase in sales in North America and Europe.

"Overall hardware sales increased as a result of a significant increase in sales of PS3, as well as an increase in sales of PSP® (PlayStation®Portable) ("PSP"), for which a new slimmer, lighter model was released.

"Sales of PlayStation®2 (“PS2”) decreased compared to the previous fiscal year.

"Overall software sales increased as a result of an increase in PS3 software sales compared to the previous fiscal year.

"Total worldwide unit sales of hardware and software were as follows:

"Worldwide hardware unit sales (increase/decrease year-on-year ):*

PS2: 13.73 million units (a decrease of 0.98 million units) [14.20m]
PSP: 13.89 million units (an increase of 4.36 million units) [8.36m]
PS3: 9.24 million units (an increase of 5.63 million units) [5.50m]

"Worldwide software unit sales (increase/decrease year-on-year ):*/**

PS2: 154.0 million units (a decrease of 39.5 million units) [193m]
PSP: 55.5 million units (an increase of 0.8 million units) [54.1m]
PS3: 57.9 million units (an increase of 44.6 million units) [13.2m]

"* For the fiscal year ended March 31, 2008, the method of reporting hardware and software unit sales has been changed from production shipments to recorded sales. In accordance with this change, the numbers for the fiscal year ended March 31, 2007 have been restated.

"** Including those both from Sony and third parties under Sony licenses.

"The operating loss decreased significantly compared with the previous fiscal year. Although there was a loss arising from the strategic pricing of PS3 hardware at points lower than its production cost, the operating losses of the PS3 business decreased as a result of successful hardware cost reductions and increased sales of software.

The strong performance of the PSP business with the introduction of a new model also contributed to the decrease in the operating loss of the overall Game segment."

Sony's chairman, Howard Stringer, recently said that bringing Sony's games division into profitability is the company's "top priority".

If you have incredible willpower and a high tolerance for tedium, you can read the SEC filing here.


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