Sega Considers Stopping Dreamcast Production

T O K Y O, Jan. 24 -- Sega Corp. said today it is seriouslyconsidering abandoning the production of its Dreamcast video-gamemachine and talking with Sony Computer Entertainment and NintendoCo. to supply games for its rivals.

“We must admit that stopping the production of the hardware isan option we are looking into,” said Hiroyuki Mori, a Segaspokesman in Tokyo. “We need more time to make a decision, and wewill announce it then.”

He would not say when the announcement was expected. The NihonKeizai Shimbun, Japan’s leading business daily, reported today thatDreamcast production would end after March and that sales wouldcontinue only as long as inventory lasted.

The market welcomed the news. Sega shares soared more than 15percent in early Wednesday Tokyo trading, ending the morningsession at 1,470 yen ($12).

Game Company, Not Machine Company

Analysts say concentrating Sega’s business on supplying gamesmakes sense and could help reverse the fortunes of the company,which has been losing money for years on sluggish game-machinesales.

“The idea that Sega should give up making machines has beenaround for some time,” said Masahiro Ono, analyst for UBS Warburgin Tokyo. “Making games for Sony is positive for Sega, and it’spositive for Sony. Sega is strong on developing games.”

Sega’s greatest strength is in its software lineup, whichincludes Sonic the Hedgehog games. Sega is planning about 100 gamesin the next fiscal year starting in April.

Sega also said it was sticking to its reform plan announced lastOctober to shift to the more profitable game-software business, aswell as the network business. Sega has also been working on gamesfor cell phones and home appliances.

Although staying short of an announcement, Sega is acknowledgingdefeat in the game-machine market to Sony and Nintendo. Competitionis expected to heat up further when Microsoft Corp. comes out withits Xbox later this year.