Tuesday, March 04, 2008

Sony PlayStation 3 to shine in 2008?

Information Week reports: [edited]

If 2006 was the year of the Xbox 360 and 2007 was the year of the Wii, 2008 is shaping up to be PlayStation 3's turn in the spotlight, as it stokes demand in the $19 billion computer gaming industry with some hotly awaited game titles.

Nintendo's Wii outsold Sony's more expensive PS3 console 4-to-1 in Japan this month, but the PS3's maiden victory over the Wii last November showed that under the right conditions, the tables could turn.

Exclusive PS3 titles like puzzle-solving, community-based game "LittleBigPlanet", production improvements that will give Sony room to cut prices, and the recent victory of its Blu-ray technology in the high-definition DVD format war, should drive demand for the games console.

"2008 will be a turning year for the PS3," said iSuppli analyst Pamela Tufegdzic. "Sony is offering a better forthcoming software pipeline with blockbuster titles like "Gran Turismo 5", which will boost PS3 sales this year."

Sony cut U.S. prices for its PS3 in November to $400-$500, compared with $250 for the Wii, and $280-$450 for the Xbox.

The company loses money on each PS3 it sells. Each machine offers the Blu-ray optical disc player and the "Cell" microprocessor that provides life-like graphics for hardcore gamers, driving up production costs.

But Sony expects manufacturing costs to fall below selling prices in the second half of next fiscal year, as it boosts production efficiency and component prices fall. This will give it flexibility to cut prices without incurring hefty losses.

Its game division is set to post an operating loss of more than 100 billion yen ($925 million) in the year to end-March, but aims to return to profit in the year to March 2009.

Meanwhile, at $400, the PS3 is one of the cheapest Blu-ray machines available, and may see spill-over demand from DVD player buyers.

"People may buy the PS3 not only for their gaming needs, but for video as well, which gives the PS3 a unique competitive edge over the Wii and Xbox 360 well into the longer term," said Tufegdzic.

Electronic Arts, the world's largest independent games publisher, is banking on a PS3 growth spurt this year, forecasting sales of 9.5-11.5 million units, versus 6-8 million for the Xbox 360.

But Sony still faces significant hurdles.

Its Home network to compete with Microsoft's Xbox Live was delayed, while shipping dates for some major game titles have slipped. Microsoft and Nintendo are also well-placed to match any of Sony's price cuts.

ISuppli's Tufegdzic expects the PS3 to lead the market only in 2011, as the Wii continues to gain momentum after the release of its new home fitness game this year.

Nintendo will launch the popular "Wii Fit" in overseas markets in the June quarter, after unit sales topped 1.2 million in the nine weeks since its release in Japan.

With the Wii's launch in late 2006, Nintendo has broadened the market to women and the elderly by offering easy-to-learn games and breaking new ground with motion-sensing controllers.

This has helped its stock surge more than five-fold in the last two years to end-2007, making Nintendo Japan's third-most valuable company.

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