http://globalarchive.ft.com/globalarchive/article.html?id=011114001787&query=SonyCOMPANIES & FINANCE THE AMERICAS: Sony chief says Xbox threatens \'life cycle\'
Financial Times; Nov 14, 2001
By PAUL ABRAHAMS
Microsoft\'s Xbox could change the economics of the Dollars 20bn games-console business, warned Kunitake Ando, Sony\'s president and chief operating officer.
"The biggest threat to PlayStation 2 (Sony\'s console) is that the Xbox changes the industry\'s life cycle," explained Mr Ando. "It is unclear how long we can keep this business model."
Traditionally, consoles have sold for five-year product life cycles, allowing the manufacturers time to recoup initial losses on hardware and generate substantial profits through software sales.
However, Mr Ando said the Xbox, due to be launched in the US tomorrow, could radically shorten that life cycle. "If it reduces it to three years we are okay," he explained. He said the company might have to shift to the PS3 earlier than it intended, which would be a blow to Microsoft.
Mary Meeker, analyst at Morgan Stanley, estimates Microsoft could lose more than Dollars 1bn before Xbox breaks even in 2004.
Mr Ando said that Microsoft had replaced Nintendo as its main competitor in the console market. Sega was forced out of the hardware market following the disastrous launch of its DreamCast console.
Mr Ando said that Sony could quickly change the PlayStation 2 into an online gaming product and then a home portal device, but the company wanted to recoup its huge investment in chip manufacturing. The Xbox features a broadband connection and a hard drive.
But the importance of the PlayStation division for Sony had been overemphasised, said Mr Ando.
"Last year we had a big loss from the PlayStation business. This year we will make very high profits. Next year competition will be intense and after that the outlook is unclear. This is a very cyclical business. Other businesses such as colour televisions and camcorders are much more stable."
Mr Ando said there was a debate within the company whether it should invest in manufacturing the PS3 because of the capital costs.
He said Sony could contract out manufacturing such as Microsoft, which is using outside suppliers for chips and has outsourced Xbox assembly to Flextronics.
Mr Ando said: "Since August, we have cut costs enough that we are no longer losing money on each PlayStation 2 we make."
Copyright: The Financial Times Limited 1995-1998
and this is the Register take on it
http://www.theregister.co.uk/con...22844.htmlSony frets over PS2 (and XBox)
By Eurogamer.net
Posted: 14/11/2001 at 16:39 GMT
Sony is feeling the heat of competition breathing down its neck. Kunitake Ando, Sony’s president and COO, has told the FT that the presence of Xbox on the market could shorten console lifecycles. In other words Ando fears that the more powerful Xbox, which actually retails for the same price as PlayStation 2 in the States, will force Sony to manufacture the PlayStation 3 ahead of schedule.
Ando also uses the opportunity to take a pop at Nintendo, drawing attention to the disappointing sales of its new console in Japan.
Currently, Sony’s console is the only one on the market in the USA, but as of next week it will have two competitors to deal with. The PS2 has an awesome catalogue of titles, though (and not content with that, Konami has mysteriously decided to launch Metal Gear Solid 2 one day after the US Xbox launch).
The news that Sony feels PS3 production may need to be ramped up sooner is slightly confusing, because the company isn\'t used to backing away from current formats as soon as something else hits the market.
That was Sega\'s MO, and the last thing we want is Sony repeating this mistake. If it\'s so worried about market share slipping through its fingers, why not hack another $100 off the price of PS2? Don\'t forget, while we pay £199, American consumers still having to pay $299 – a shade over £200 at current exchange rates. Under normal circumstances we would expect to pay as many pounds as the American pay dollars. Sony isn\'t exactly giving itself every break, which is why this PS3 message seems somewhat confused.
The truth is, Sony may not be losing much money on PS2 units at the moment, but with another $100 off the price it would be, and in order to get PS3 production online early (which Ando-san believes his company may need to do) it needs to recoup a lot of iinvestment in chip manufacturing. Perhaps now it\'s regretting its decision not to farm out console production to another firm, as Microsoft have done with Xbox...
If Sony is in this position, it\'s a no-winner. The company cannot afford to drop the price of PlayStation 2 because it needs to recoup costs. But neither can it afford to let Microsoft steal their market share by undercutting them in the near future. So which is worse? Losing the ability to construct PlayStation 3 in time to deal with an Xbox successor (HomeStation is still happening, as far as we know), or losing market share?
It\'s an unenviable position to be in. But we think that Microsoft has the greatest fight on its hands. MS has no previous success in the games console sector upon which to base promotions, few if any killer applications (Jet Set Radio Future isn\'t even out yet, so forget that), and it is opting for the higher price of $299.
With things the way they are now, Sony\'s next move may decide whether Xbox is a success or a failure.
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Who got game? PS2 does!!! Damn I hope Sony will bring the PS3 out sooner.
Topic: Xbox threatens \'LIFE CYCLE" PS3 earlier than it intended? (Read 2179 times)