Will Sony’s PS4 Be the Key to a Turnaround?

PlayStation 4 Hardware

Sony Corp.’s (NYSE:SNE) PlayStation 4 finally went on sale Friday to great fanfare and strong marks from video game critics. But according to the Wall Street Journal, Sony is hoping that the PS4 will be the key to struggling sales that have landed the tech giant in troubled waters.

Despite the hubbub surrounding the PlayStation 4, Sony reported weak earnings in its second quarter, leading the company to cut profit forecasts for the year. Sales outlooks for consumer products like TV sets, personal computers, and cameras were all lowered, while the video games business reported an operating loss of $8 million despite seeing revenue increases of 5.1 percent year over year.

Now, Sony is hoping that the PS4 can fuel its turnaround as it heightens sales expectations for its first game console in seven years. Sony’s goal is to sell 5 million units by March, which would put the console on track to eclipse sales of the PS3 during the same time period — and it might not be an unreasonable goal. While Microsoft’s (NASDAQ:MSFT) Xbox 360 won out in the previous console generation, there’s no doubt that the pendulum appears to be swinging back in Sony’s direction, as its new console has been well received by gaming publications, and it could come out on top against the Xbox One

Analysts are quick to point out that the first years of new game consoles are not immediately profitable, meaning that however well the PS4 may perform in the early goings, it’s unlikely to give immediate boosts to Sony’s revenue in the short term. This is due to console components initially being high in cost due to their cutting edge technology — in fact, Sony is operating at a loss on PS4 consoles. But as component parts fall in price and the PS4′s user base grows, leading to increased software sales, Sony is sure to see dividends down the line. The question remains what Sony will do in the meantime.

But according to SMBC Nikko Securities analyst Koki Shiraishi, “we can’t really expect the PS4 business to generate double-digit margins like the first and second generation PlayStation consoles did.” This is due to the changing video game market, in which smartphones and tablets have increasingly become the most popular medium for gaming. While mobile gaming has affected Nintendo Co. more than Sony and Microsoft, according to industry analysts, Shiraishi says that appealing to the hardcore gaming community won’t be enough to make the PS4 a big winner for Sony.

According to the WSJ, Sony has been trying to find ways to integrate its content and hardware businesses — for example, Sony might be able to bring in more mainstream users if it made its movie and music content available on the PS4. But as the WSJ points out, such a move is a delicate decision and has the potential to cannibalize profits from Sony’s other units.

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