Sony suffers as PS3 worries continue

Sony’s shares fell on Thursday amid concerns about the negative impact that the delayed launch of the consumer electronics PlayStation 3 games console in Europe and the cut-back in initial volumes in the US and Japan could have on its games business.

However, the market’s reaction was subdued with shares falling 1.6 per cent to Y4,970 on relief that Sony’s problems with the PS3 were not worse.

Sony said on Wednesday that problems in mass producing blue laser diodes would cause a delay to shipments of PS3 in Europe to next March and force it to halve the number of consoles that will be available to Japan and the US this year to 2m from 4m.

The PS3 delay has dealt another blow to Sony’s reputation and raised concerns about the ability of Sir Howard Stringer, chief executive, to fulfill his pledge to turn around the group. It comes after Dell and Apple Computer were last month forced to recall almost 6m notebook computer batteries made by Sony because of a possibility they may ignite.

But Sony’s decision to keep to its PS3 November launch dates for Japan and the US means that “the worst case scenario has been avoided,” Eiji Katayama, analyst at Nomura Securities, said in a note on Thursday.

Koya Tabata, analyst at Credit Suisse in Tokyo, said: “Given that the market believed the PS3 would not even come out this year, the delay was no surprise.” Analysts and industry members have been concerned about shortages of components, such as blue laser diode and blue laser discs, for the PS3.

“We were wondering how they were going to procure sufficient laser diodes,” an official at a competing electronics manufacturer says.

Sony recently allowed journalists to view it factories to quell persistent speculation that it was having problems manufacturng the discs. Yields at the plant are as high as 80 per cent.

As for the blue laser diode, apart from Sony, Nichia is the only company that can manufacture blue lasers in any numbers.

Ken Kutaragi, head of the PlayStation business, emphasised that the problems Sony had encountered mass-producing blue laser diodes had been resolved.

However, Sony is not the only company that needs blue laser diodes. As well as being used in the Blu-ray discs, they are used in players using the competing HD-DVD standards.

Nichia – whose maverick scientist Shuji Nakamura invented the blue laser and which has the most experience developing blue laser components – said on Thursday “we are also experiencing problems with mass production.”

“To put it simply, it is difficult to make. We are struggling but we are doing our best,” Nichia said.

But Mr Katayama at Nomura said “the PS3’s appeal as a game platform has declined, in our view, and even if there are no further problems with the hardware, the issue of reduced profit prospects over the medium term remains”.