Sony Hopes the PS3 Slim Can Beef Up Sales

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Sony probably would have sold more consoles if its prices had been more competitive, says iSuppli analyst Pamela Tufegdzic. But even now, Microsoft (MSFT) and Nintendo (7974.T) could blunt the effect of Sony's price cut with one of their own. Wedbush Morgan Securities gaming analyst Michael Pachter predicts Microsoft will lower the Xbox 360's price before February and that Nintendo will likely follow suit.

Why didn't Sony slash its prices sooner? Doing so might have added to the gaming division's massive losses. Back in 2006, iSuppli estimated that Sony was losing roughly $240 on every 60-gigabyte PS3 sold, and $305 on a 20GB model, not including marketing expenses. The company's efforts to design the console with smaller chips and fewer parts likely helped lower costs. Last December, iSuppli reviewed the PS3's costs and found that Sony was still selling the machines for a loss of about $50 per machine. The PS3 Slim likely narrows that loss further. Shawn Layden, president of Sony Computer Entertainment Japan, declined to discuss the console's cost.

Some analysts think Sony's gaming division could eke out a profit in the October-December quarter. Any profits are likely to be short-lived, though: The gaming unit likely will post another operating loss this fiscal year, says Macquarie Securities (MQG.AX) analyst David Gibson. Adds KBC Securities' analyst Hiroshi Kamide: "I think they're going to lose money anyway at this rate so they probably figured, 'Why not do something more proactive about jump-starting the gaming business?' "

Sony hasn't run through its arsenal of new gadgetry. In 2010, it may release a new technology, shown at the E3 gaming conference in Los Angeles in June, that captures a gamer's movements and does away with the handheld controller. (Microsoft has demonstrated its own motion tech for game play, called Project Natal.) Sony executives are also working to improve the PS3's digital distribution platform. The company's PlayStation Network already boasts 25 million subscribers who can go online from a PC or PS3 and play games and buy game add-ons, TV shows, movies, and other digital content. In recent months, Sony has made it easier for users to transfer data from the PS3 to the PlayStation Portable console, and executives have hinted that they are working to make other Sony gadgets more compatible with the gaming system. Still, digital downloads may only bring in $500 million for Sony this year—peanuts for a $73 billion company—according to Barclays Capital Japan analyst Eric Lee.

Hall is BusinessWeek's technology correspondent in Tokyo.

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