Sony's PS3: High-Scorer No More

December 31st, 2006, 17:18 Posted By: wraggster

via thestreet

After more than a decade at the top of the video game heap, during which it sold more than 200 million consoles, Sony is set to be knocked off its firm position as King of the Hill because of its flawed PlayStation 3 strategy. This is only one of many reasons to avoid shares of the consumer-electronics conglomerate, but it's certainly the most important.

Sony's video-game business is easily its crown jewel. At its best, it has provided more than 60% of Sony's operating profit despite hovering around 10% of overall Sony revenue. Given that Sony is almost certainly going to lose market share, the company's profitability will be dragged down dramatically.

This state of affairs means Sony's historically lucrative video-game unit is very likely to lose its luster over the next few years as Microsoft and Nintendo gain market share in this segment. Plus, one must consider the generally tough state of the consumer electronics business, given how competitive businesses such as high-definition televisions have become. With that in mind, it is nearly impossible for me to come up with a bullish case for Sony.

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