Sony will put off the release of its much awaited PlayStation 3 console until November from its planned spring debut because more work is needed on its next-generation DVD technology, the company said Wednesday.
Ken Kutaragi, head of Sony's video-games division, made the announcement at a hastily called news conference after reports of the delay surfaced in the business daily Nihon Keizai Shimbun and other papers.
The PlayStation 3 is critical for Sony Corp.'s (SNE) profits and brand image, so the delay is a major setback for the Japanese electronics and entertainment company as it struggles to mount a recovery after several years of poor earnings.
The reports sent Sony's stock tumbling 1.8 percent to 5,470 yen ($46) Wednesday. Kutaragi announced the decision after the close of the Tokyo Stock Exchange.
In the United States, however, Sony's American depositary shares rose as much as 2.2 percent and were recently up 34 cents at $46.85 on the New York Stock Exchange, off a four-year high of about $51 from late January.
U.S. analysts said Sony's announcement likely alleviated investors' concerns that the PlayStation 3 wouldn't reach the U.S. marketplace until 2007.
The new timeline means that the PlayStation 3 will hit store shelves simultaneously in Japan, North America and Europe, just in time for Christmas.
"We believe the news will come as a relief to investors who had feared that Sony would not launch the console in Japan until November, followed by a typical four- to five-month lag into the U.S. market," Brendan McCabe of CIBC World Markets wrote in a research note.
Kutaragi said Sony is still trying to finalize the copyright protection technology and other standards for the Blu-ray DVD disc, the format for PlayStation 3, and next-generation video for the company's electronics gadgets in the works.
"I'd like to apologize for the delay," Kutaragi said at a Tokyo hotel. "I have been cautious because many people in various areas are banking on the potential of the next-generation DVD."
Blu-ray preparations were initially to have been completed by last September, but now won't be finalized until next month, he said.
The delay comes at a time when competition in next-generation game consoles is heating up with U.S. software maker Microsoft Corp. (MSFT) already putting the Xbox 360 on sale last year. Nintendo Co., the Japanese manufacture of Game Boy machines and Pokemon and Super Mario game software, is also planning its version called Revolution later this year.
The PlayStation series is now the dominant brand for home consoles, helping support Sony's bottom line in recent years, and controlling about 60 percent of the global market, according to Kutaragi.
Sony has shipped nearly 204 million machines worldwide when combining shipments for the original PlayStation and its upgrade, the PlayStation 2.
Toshiaki Nishimura, analyst for Yasuda Asset Management Co., said the delay was likely to hurt game revenue for Sony, but the announcement wasn't a big surprise for the market, which had anticipated a delay. Speculation about a possible delay had been growing in the last few months.
But further delays that could force Sony to miss Christmas entirely would be detrimental, he said.
In a research note, Merrill Lynch (MER) analyst Hitoshi Kuriyama said Sony "still has a number of obstacles to surmount before it can achieve a simultaneous global launch of PS3 in November. We will need to keep close tabs on whether any further delays emerge because postponing the launch will worsen the company's competitive position."
Nonetheless, Nishimura said, "Sony is merely at the starting point of a race."
"We are even a bit relieved that Sony has definitely said it's coming out with the PS3, because that's so critical for its Cell business," he said.
The PlayStation 3 console can be used as a Blu-ray DVD player, but will also read previously released PlayStation and PlayStation 2 games, Kutaragi said.
It will also have a hard disk drive, broadband and wireless Internet connections, and support high-definition televisions.
The company is expecting monthly production of 1 million machines, and targeting production of 6 million units for the fiscal year through March 2007, Kutaragi said.
Any setback in the PlayStation business could deal a big blow to Sony, which had just announced in January that it will post a profit of 70 billion yen ($592 million) for the fiscal year through March, instead of sinking into a 10 billion yen ($85 million) loss, as projected earlier.
The loss would have been the company's first full-fiscal-year loss in more than a decade since plunging into the red in 1994 for losses related to its acquisition of Columbia Pictures.
For decades, Sony symbolized Japan's manufacturing power exemplified by the original Walkman. But in recent years, the company, which also has movie and music businesses, was battered by declining electronics prices.
Sony's core electronics division has lost money for two straight fiscal years. Since Welsh-born Howard Stringer took over last year as the first foreigner to head the company, Sony has been trying to achieve a turnaround.
It has scrapped unprofitable operations such as Aibo entertainment robots, plasma display TVs and an expensive luxury audiovisual line offered in Japan called Qualia. It has also promised to trim 10,000 jobs, or nearly 7 percent of Sony's global work force, by March 2008.
It's only been in recent months that Sony has made a comeback in flat-panel TVs, using liquid crystal displays manufactured in a joint venture with South Korean rival Samsung Electronics Co.
It has also come out with Walkman MP3 digital music players to catch up with the hit iPod from Apple Computer Inc. (AAPL).