MassiveAttack
Banned
Sony Gambles on PlayStation Parts
Homemade Chip Content
For New Portable Gadget
Aimed at Boosting Profit
By PHRED DVORAK
Staff Reporter of THE WALL STREET JOURNAL
December 10, 2004
When Sony Corp. on Sunday in Japan launches the PlayStation Portable -- a hand-held gadget that plays not only games, but movies and music -- the device will pit the company in hot competition with a host of portable game and music players.
But there will be more at stake for Sony: It's counting on the PSP to boost profits by making the key parts of its gadgets itself.
The PSP, Sony's first new videogame machine since the wildly successful PlayStation 2, won't get to the U.S. and Europe until next year. And even the Japan rollout will be a more modest affair than that of the PlayStation 2 in 2000, when thousands of buyers lined up overnight in front of Tokyo videogame stores. (One million units were sold in a weekend.)
Sony is planning to ship only 200,000 units of PSP on Sunday and 100,000 more per week in December. Many Tokyo stores are anticipating a shortage of the PSP, which will sell here for ¥19,800 ($190.) They are already warning buyers they are limited to purchasing just one PSP per person.
The relatively low-key launch belies the importance of the PSP to Sony. The gadget puts the PSP head-to-head not only with Nintendo Co.'s Game Boy, the No. 1 hand-held game player, but also portable video and music players ranging from Apple Computer Inc.'s iPod to Microsoft Corp.-backed Portable Media Players.
More importantly, Sony's strategy is part of a push to reinvigorate the company's electronics business, and help raise electronics operating-profit margins to a promised 10% by 2006 from around 0.6% in the latest quarter. In the case of semiconductors, for instance, Sony is trying to boost profits by raising the ratio of homemade chips it uses to 40% from around 20% now.
"This is part of a Sony group business model that calls for increasing the ratio of parts we make ourselves," says PlayStation creator Ken Kutaragi.
The feature-crammed PSP is one of the best illustrations so far of how this strategy is supposed to work. Around half of the gadget's parts, by value, were made by Sony.
There's the processor, which lets the little hand-held show graphics that are similar in quality to the powerful PlayStation 2 console. That was made at a cutting-edge chip factory Sony built recently. And there's the little optical disk, called a UMD, that PSP games and eventually movies will come stored on. Sony makes the disks as well as the lasers that read the disk data. Sony also makes the removable memory cards that store data -- like music or photo files -- in the PSP, and the batteries that power it.
That self-reliance is a double-edged sword. Because Sony makes so much of the PSP's guts, it can better control costs -- a fact Mr. Kutaragi has used to pare the PSP's Japan price down. And if the PSP is a hit, Sony stands to make a lot more money on it than if it had to buy lots of expensive parts from other companies.
But if the PSP flops, Sony could lose big too, especially since the company has sunk a lot of money into the research and manufacturing facilities needed to make those parts. Sony has spent around 62 billion yen ($596 million), for example, on the facilities.
The key to success, Mr. Kutaragi says, is volume: Sony has to sell lots of PSPs. Although Sony expects to ship only around 500,000 units this year, it is aiming to have sold three million by the end of March 2005.
Part of the trick will be enticing buyers with the new multimedia features of the PSP. Mr. Kutaragi has plenty of ideas, including downloading video and music onto the PSP from Sony's Connect music site, as well as an upcoming movie-download site. Eventually, he says, people may even use the PSP's wireless connection to download, for instance, an image of a car for their racing game.
Sony's campaign to make the PSP a success is already facing challenges. Delays in software development mean only a handful of game titles will be ready when the PSP launches on Sunday; time-consuming negotiations with Hollywood mean movies won't be widely available until sometime next year.
The PSP missed the all-important Christmas season in the U.S., even as a new game hand-held from Nintendo, the DS, posts strong sales. Nintendo said yesterday it expects to ship 2.8 million DS units in the U.S. and Japan this year -- up from a previous estimate of two million.
Homemade Chip Content
For New Portable Gadget
Aimed at Boosting Profit
By PHRED DVORAK
Staff Reporter of THE WALL STREET JOURNAL
December 10, 2004
When Sony Corp. on Sunday in Japan launches the PlayStation Portable -- a hand-held gadget that plays not only games, but movies and music -- the device will pit the company in hot competition with a host of portable game and music players.
But there will be more at stake for Sony: It's counting on the PSP to boost profits by making the key parts of its gadgets itself.
The PSP, Sony's first new videogame machine since the wildly successful PlayStation 2, won't get to the U.S. and Europe until next year. And even the Japan rollout will be a more modest affair than that of the PlayStation 2 in 2000, when thousands of buyers lined up overnight in front of Tokyo videogame stores. (One million units were sold in a weekend.)
Sony is planning to ship only 200,000 units of PSP on Sunday and 100,000 more per week in December. Many Tokyo stores are anticipating a shortage of the PSP, which will sell here for ¥19,800 ($190.) They are already warning buyers they are limited to purchasing just one PSP per person.
The relatively low-key launch belies the importance of the PSP to Sony. The gadget puts the PSP head-to-head not only with Nintendo Co.'s Game Boy, the No. 1 hand-held game player, but also portable video and music players ranging from Apple Computer Inc.'s iPod to Microsoft Corp.-backed Portable Media Players.
More importantly, Sony's strategy is part of a push to reinvigorate the company's electronics business, and help raise electronics operating-profit margins to a promised 10% by 2006 from around 0.6% in the latest quarter. In the case of semiconductors, for instance, Sony is trying to boost profits by raising the ratio of homemade chips it uses to 40% from around 20% now.
"This is part of a Sony group business model that calls for increasing the ratio of parts we make ourselves," says PlayStation creator Ken Kutaragi.
The feature-crammed PSP is one of the best illustrations so far of how this strategy is supposed to work. Around half of the gadget's parts, by value, were made by Sony.
There's the processor, which lets the little hand-held show graphics that are similar in quality to the powerful PlayStation 2 console. That was made at a cutting-edge chip factory Sony built recently. And there's the little optical disk, called a UMD, that PSP games and eventually movies will come stored on. Sony makes the disks as well as the lasers that read the disk data. Sony also makes the removable memory cards that store data -- like music or photo files -- in the PSP, and the batteries that power it.
That self-reliance is a double-edged sword. Because Sony makes so much of the PSP's guts, it can better control costs -- a fact Mr. Kutaragi has used to pare the PSP's Japan price down. And if the PSP is a hit, Sony stands to make a lot more money on it than if it had to buy lots of expensive parts from other companies.
But if the PSP flops, Sony could lose big too, especially since the company has sunk a lot of money into the research and manufacturing facilities needed to make those parts. Sony has spent around 62 billion yen ($596 million), for example, on the facilities.
The key to success, Mr. Kutaragi says, is volume: Sony has to sell lots of PSPs. Although Sony expects to ship only around 500,000 units this year, it is aiming to have sold three million by the end of March 2005.
Part of the trick will be enticing buyers with the new multimedia features of the PSP. Mr. Kutaragi has plenty of ideas, including downloading video and music onto the PSP from Sony's Connect music site, as well as an upcoming movie-download site. Eventually, he says, people may even use the PSP's wireless connection to download, for instance, an image of a car for their racing game.
Sony's campaign to make the PSP a success is already facing challenges. Delays in software development mean only a handful of game titles will be ready when the PSP launches on Sunday; time-consuming negotiations with Hollywood mean movies won't be widely available until sometime next year.
The PSP missed the all-important Christmas season in the U.S., even as a new game hand-held from Nintendo, the DS, posts strong sales. Nintendo said yesterday it expects to ship 2.8 million DS units in the U.S. and Japan this year -- up from a previous estimate of two million.
: they want them to be firing on "all cyclinders" as people say.