PlayStation 3 Worries Tarnish Sony Image

TOKYO – It has been an annus horribilis for Sony.

The Japanese electronics company has been hit with a string of embarrassments that have dented its reputation for quality.

Already reeling from a string of laptop battery recalls, Sony Corp. (SNE) saw its shares plummet this week amid fresh worries about the upcoming release of its much-anticipated PlayStation 3 video game console.

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Sony has already twice delayed the product's launch amid intensifying competition from rivals Microsoft (MSFT) and Nintendo.

The PlayStation 3 will hit stores in Japan on Nov. 11 and in the United States on Nov. 17. In Europe, they won't go on sale until March, four months later than planned.

Investors worried about the product after Macquarie Equities analyst David Gibson wrote in a report that PlayStation 3 units on display at the Tokyo Game Show about 10 days ago operated erratically and had to be repeatedly reset.

"While the reason for this is unknown, we suspect it may be due to overheating as a result of enclosing the units and the high temperatures at the venue," Gibson wrote in the report Monday. "We are concerned that such a problem has occurred so close to full production and is clearly negative news for the company."

Earlier in the day, investment firm Goldman Sachs Group Inc. (GS) lowered Sony's stock rating to "neutral" from "buy," citing confusion over the release of PlayStation 3 and concerns that disappointing sales of PlayStation Portables may weigh on its earnings in electronics operations more heavily than expected.

Sony denied that there was any technical problem with the PlayStation 3.

But the company's stock tumbled 130 yen ($1.11), or 2.75 percent, to 4,600 yen ($38.98) on the Tokyo Stock Exchange Tuesday.

[Shares on the New York Stock Exchange opened sharply down Wednesday morning, then rose somewhat, only to open down again Thursday and then rise slightly to close slightly higher than the previous day.]

The problems come in the midst of Sony's widely publicized turnaround effort under its first foreign chief executive, Welshman Howard Stringer.

It has been hit with mounting extra costs after some 7 million of its laptop batteries have been recalled on fears they could catch fire.

Desperately trying to catch up to Apple Computer Inc.'s (AAPL) iPod in portable music players, Sony said last month it was delaying the Japanese release of its new digital Walkman by a week until Sept. 23 because of a malfunction of an unspecified part.

It is also fighting to make a comeback in flat-panel TVs after falling badly behind Samsung Electronics Co. of South Korea and other rivals.

Sony shares have plunged over 20 percent since April, before the company's battery recall woes. At the start of the year, shares were at 4,730 yen.

Sony spokeswoman Nanako Kato said any problems at the Tokyo Game Show, where Sony, Microsoft and Nintendo showed off rival offerings under the same roof, were likely caused by one-of-a-kind temperature irregularities.

About 200 PlayStation 3 units were clustered together in close proximity and housed in kiosks that concentrated the heat generated by their processors and provided poor ventilation, Kato said.

Overheating under such circumstances is a common affliction at trade shows, afflicting not just Sony products but those of its competitors, she said.

"It's not a problem with the PlayStation 3 unit itself," Kato said. "For a normal player at home, there shouldn't be any problem."

Sony is sticking to its plans to ship 2 million PlayStation 3 units by year's end and 6 million by March 31, 2007, she said.

U.S.-based Microsoft Corp. rushed its next-generation Xbox 360 to Japanese markets last year to get a head start on its rivals, but it has seen sluggish sales in Japan, which is one of the world's biggest video game markets but one in which players have a deep loyalty to homegrown Sony.

Nintendo Co. meanwhile is planning to launch its new Wii game console in the final quarter of the year and price it below both rivals, the Xbox 360 and the PlayStation 3.

Sony, based in Tokyo, recorded a 32.3 billion yen ($278 million), profit during the April-June quarter on the back of strong sales of flat-panel TVs and digital cameras. That was a big improvement from the 7.3 billion yen loss posted the same period last year.