Playstation 2 Consoles Not Ready on Time

T O K Y O, Sept. 28, 2000 -- When Sony’s PlayStation 2 game console hit the shelves in March, kids in Japan thought they had waited long enough: about 24 hours and in the cold. Too bad U.S. consumers are going to have to wait much longer for their own digital delight.

Sony Computer Entertainment America, the company’s U.S. unit, said late Wednesday that it would only be able to dole out 500,000 PS2 video game units on its Oct. 26 North American launch date, half of what the firm had expected to ship.

The firm said the delay was due to a lack of supply parts for the console, though it did not specify which parts. Sony added, however, that it was still on track to meet its global sales target of 10 million units for fiscal 2001, ending in March.

Sony said the modified schedule will not affect availability of PlayStation 2 during the holiday season, anticipating there will be about 1.3 million units in supply.

Investor ReactionShares of Sony traded on the Tokyo Stock Exchange tumbled 6.4 percent on the news, pushing prices off about 37 percent from highs posted in March.

A Sony spokeswoman in Tokyo said production levels were lagging by about a month but did not explain why. She added that the launch of PS2 in Europe, planned for Nov. 24, had not changed, and about 3 million units would be shipped by the end of the fiscal year.

Many experts think the stock’s slump today is a one-time event, and the initial shock will wither in the days to come. That said, if investors thought Sony’s game division would carry the firm into rosier times, think again.

“There’s no reason to panic on the news, since Sony is telling everyone that it will still meet its global sales target,” says Hiroyuki Matsumoto, analyst at Kokusai Securities. “However, what I am worried about is if the U.S. economy significantly slows. That means Sony’s electronics business, which accounts for almost 75 percent of total sales, will definitely wither.”

Sony posted a net loss in the April to June quarter, down from the profit in the same time last year. This was attributed to a one-time loss from its U.S. movie unit due to new accounting standards.

The Big PictureLooking further into the numbers, however, reveals sales from Sony’s video game business posted an operating loss of 6 percent for the first quarter. Sony hoped that its game division would post a profit about 20 billion yen by the end of fiscal 2000, but that was on the expectation that kids in the U.S. and Europe would be begging their parents for a PS2 this Christmas.

“I don’t think everyone who wants one will get it,” said Sony Senior Vice President Jack Tretton, according to Reuters. “I think by Oct. 26, it will be difficult, and the situation will improve after the holiday season in the January to March time frame.”

In Japan, Sony actually sees red on each PS2 game sold because of high production costs. The games sell for about $300. In addition, Sony was burdened by slow game sales this year. About two games are currently sold with each PS2 console, which is half of what the firm thought it would peddle.

“There’s a huge shift in the game industry about to occur over the next year, and I’m wondering if Sony is aware of this,” says Takeshi Tajima, analyst at Wit Capital. Although Tajima doesn’t think there will be much impact on Sony’s second quarter and fiscal first-half earnings scheduled to be released Oct. 26 — the firm’s electronic business is still expected to post profits — he’s not sure what will happen over the long term.

“Of course, it’s cool to have a DVD player on a console, but many [software] developers are starting to roll out games that can be played on multiple platforms. That means you can have a generic, and therefore cheaper, game box and play whatever game you like. What’s Sony going to do with PS2 then?”

Repeat PerformanceIn March, when PlayStation 2 was first released in Japan, the company had a similar problem, delaying shipment of 260,000 units because of a shortage of computer hardware.

Thousands of people lined up outside stores in Tokyo the day before the game machines went on sale and, at most shops, the PlayStation 2 sold out within an hour.

The company is expected to launch PlayStation 2 in Europe on Nov. 24.

The Associated Press and Reuters contributed to this report.