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Sony Reporting Masks Real State of PlayStation Gaming Business

It's been a long haul for Sony (SNE), with significant losses as it has subsidized sales of its PlayStation 3 (PS3) gaming console, waiting for dropping hardware costs and software revenue to finally put the device into the black. And last quarter, the division responsible for the system made operating income of $211 million on $6.589 billion in revenue. There's only one problem: a switch that Sony made in its divisional structure makes a real apples-to-apples year-over-year comparison difficult.

In this most recent earnings announcement, gaming consoles came under the Networked Products & Services division, which also includes VAIO PCs. At the same time the previous year (last calendar quarter of 2008), console game units occupied a division unto themselves, with operating income running $4 million on $4.328 billion of revenue. At that time, the VAIO was classified as part of the Electronics division, along with Blu-ray disc players, digital cameras, and video cameras. The change in reporting happened with the beginning of the fiscal year that started in April 2009.

The number of PS3 units sold did increase to 6.5 million from 4.5 million the previous year. But according to Sony, the majority of the 1.9 percent year-over-year increase in revenue for the entire division was mostly due to increased sales of VAIOs. Even with the increase in PS3s going out the door, sales in the games business actually decreased because of reduced sales in PlayStation Portable (PSP) hardware and both hardware and software in the PlayStation 2 (PS2) line.

The improved cost structure of the PS3 did help the profitability of the game business, which, as Sony noted, was "relatively unchanged" year-over-year. That's both good and bad. The good part is that the PS3 is losing less money. The bad part is that it's still losing money. For a long time, the PS2 was the real mainstay of the business, but those sales are dropping. Given the age of that console, it's still amazing that it sold 2.1 million units last quarter, or just under a third of what the PS3 did, even with lowered consumer prices. But that business turned profitable a long time ago. The PS3 is likely going to have to ramp down costs even faster than it has, as the PS2 crutch continues to fade.

Image courtesy Sony.