Sony PS3 Unit Sales Flat Lining and Trending Down

Sony's overall numbers are in with a big annual loss. That means it's time for one of our periodic looks at the PS3. And while I know the fans won't like this, the data shows that the trend line of sales is flattening, with a projection showing the start of a unit sales decline this year, even as competitors Microsoft and Nintendo have held up under the recession. That raises the question of how long Sony can keep up its gaming business.

I already hear the teeth grinding, but bear with me for the purely business analysis. Caveat: you'll have to read closely because Sony's 2008 fiscal year actually ends in 2009, unlike the western convention, and we'll be moving between calendar years and fiscal years a bit. First, here's the quarterly global unit sales data from Sony's own public filings.

Clearly this isn't a pretty situation. In Sony's 2008 Q3, which translates into calendar year 2008's Q4, sales were $4.33 billion and operating income was $4 million. Dollar sales decreased 32.2 percent year over year -- during the holiday season. Not good. Sony sold 4.46 million PS3 units worldwide from October 1 through December 31 2008. That was a drop of 440,000 units from the same time the previous year. Really not good. Yes, it was the holiday season of a tough year, but Sony's main competitors seemed to have done pretty well.

So, for calendar year 2008, unit sales were 10.78 million, a year-over-year increase of 21.8 percent compared to calendar year 2007 unit sales of 8.85 million. But I'd argue that it's now time to switch to a fiscal year view -- not to game the analysis, but to get out of the introductory phase of the PS3, which did start a bit slowly. On a fiscal year basis, the period through March 31, 2009 saw PS3 unit sales of 10.06 million, versus the period through March 31, 2008 of 9.12, for an increase of 10.3 percent. It's been increasing in total, but, as that pesky graph shows, the historic trend of PS3 sales literally looks as though they are peaking.

If that's not bad enough, here's the really scary part for Sony: It is still losing money in games. Sales for the division dropped by 18 percent fiscal year over year. According to the company, much of the fall was due to the appreciating value of the yen, but even then there was an 8 percent slide on a local currency basis. Again, on a fiscal year-over-year basis, although PS3 unit sales were up, PS2 sales, which have helped shore up the division, dropped by over 42 percent. PS3 software was up by 45.8 million units, but PS2 software sales were down by 70.5 million units. That was a one-two punch, and the company attributed much of their loss beyond appreciation of the yen to the PS2 sales slowdown. In other words, the ten year old cash cow is giving up the ghost, and that's been the driver of revenue. PSP hardware unit sales were up by about 2.2 percent, but PSP software unit sales were down by 9.4 percent.

And guess what? Sony is already saying that the coming year is also going to be a bad one for its game division. The business will continue to record a loss because of appreciation of the yen and -- wait for it -- dropping PS2 sales. , which means that the strategy of dropping PS2 prices to seed the market for buyer conversion to PS3s continues to be incomprehensible. Sony does say that it expects continued drops in PS3 hardware costs and an "enhanced line-up of software titles" to improve the profitability of the PS3. But this is corporate speak for hopefully losing less money than before, because if the units were making money, the division could.

As I've been saying for a while, the high cost of producing the PS3 has been killing this business. The only way out of that is increasingly ramp up sales so higher production could translate into lower costs, but as the unit projection suggests, that's not likely. And the point becomes obvious when you look at the following chart that does a unit trend projection through the rest of Sony's fiscal year 2009 (that is, through March 31, 2010).

Not only will revenue continue to drop, but there's a good chance that PS3 unit sales will be falling. But then, you also have to wonder about a company whose management, after a whopping $2.32 billion loss for the year, decides to pay a dividend to shareholders, essentially bribing them to stay around. When a company loses money, doesn't a dividend have to come out of money in the bank or money (borrowed) from a bank? Hey, at least they lost less money than the banks.