Sega Considers Stopping Dreamcast Production
T O K Y O, Jan. 24, 2001 -- 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.
Sega Struggled With Dreamcast
Sega has been in trouble for years, forecasting $202 million inlosses for the fiscal year ending in March. It posted losses ofabout $342 million for the previous fiscal year.
Analysts say turning profits on the Dreamcast is difficultbecause of its costly technology. Sega has been forced to cutDreamcast’s price on both sides of the Pacific to boost sales.
In Japan, it went for $255 at its launch in 1998 but was markeddown to $170. In the United States, Sega slashed prices of itsDreamcast console to $149 from $199 last fall, and offered $150rebates to spur sales.
Even then, sales have not caught up with its rivals, totaling5.9 million worldwide. Sony has sold about 76 million of itsoriginal PlayStation consoles worldwide and more than 3 million ofits upgraded PlayStation2 in Japan. The PlayStation2 went on salein the United States before Christmas, and sales figures will beannounced Thursday.
Nintendo has sold 30 million Nintendo 64 consoles and 105million Game Boy machines worldwide. The maker of the Mario gamesis slated to bring out its upgraded GameCube this year.
Revenues of Dreamcast were disappointing in the United Statesfor the holiday season, as consumers appeared to be holding offtheir purchases of consoles until new models came out.
U.S. sales of Dreamcast, launched in the fall of 1999, totaled4.5 million through December, running below the company’s plan toreach 7.5 million units by March 31, according to the GartnerGroup, a research company based in San Jose, Calif.