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Forums - Sony Discussion - The Yen is Killing Sony - Is a PS3 Price Cut Even Possible for 2009??

Dollar falls to 13-year low against yen

http://www.washingtonpost.com/wp-dyn/content/article/2008/12/12/AR2008121200241.html?hpid=topnews

 

TOKYO -- The dollar plunged to a 13-year low against the yen Friday, following the collapse of a $14 billion government bailout for U.S. automakers.

The dollar sank to 88.16 yen in afternoon trading in Tokyo, its lowest level since Aug. 2, 1995, when the U.S. currency was at 88.02 yen.

The greenback later recovered to 89.72 yen, but remained well under the 91.43 yen mark from late Thursday.

A senior financial ministry official described foreign exchange fluctuations as "too volatile," according to Kyodo news agency.

The rescue package sought by Detroit's ailing automakers was earlier approved by the House of Representatives but unraveled in the Senate. Bipartisan talks broke down over Republican demands that the unions agree to steep wage cuts by 2009 to bring their pay into line with Japanese carmakers.

The news also extended losses in Japanese stocks. The benchmark Nikkei 225 stock average shed 5.6 percent to 8,235.87.

A strong yen is the last thing Japanese exporters need.

Major manufacturers including Toyota Motor Corp. and Sony Corp. are already reeling from slumping global demand. Yen appreciation erodes overseas profits when repatriated to Japan and makes products more expensive abroad.

 

 

 

 

Now how bad is it for Sony?? Answer - BAD!

Look at the history of the Yen. When the PS3 was launched in the U.S. the Yen compared to the Dollar was in the ¥117-¥118 range, today its at ¥89!!  Representing a whopping 25% drop!!

Sony is making 25% less money on every PS3 sold in the states since launch, that doesn't even include the official price drops.

 

PS3 - 40% Price Cut Since Launch

Now what happens if we take into account the official price cuts?

Nov 2006 - Sony made ¥58,882 from every 20 gig PS3 sold ($499)
Dec 2008  - Sony makes ¥35,511 from every 80 gig PS3 sold ( $399)

That's a 40% price cut since launch! Do we really expect Sony do cut another $50 off the console? That would amount to a 49% price cut from launch!

How much further can Sony go? Can the U.S. dollar rise back up against the Yen and how long will it take? No one really knows.. but the Yen is at a 13 year low and this will lay heavily on Sony's decisions to cut the PS3's price here in NA for 2009.

 



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Look at this quote from Sony's CFO back when the dollar was stronger than now. He talks about tens of billions of Yen, which means hundreds of millions of dollars in losses at SCE alone.

Ishino from Mitsubishi UFJ. Two questions. One, in the – you revise downward, but the yen keeps appreciating the euro. If you assume 120 yen per euro, what sort of downside risk or downward revision risk including segment information? That’s what I’d like to know. Second point, TV and Game business, especially TV, what sort of impact will it have on profit and loss of TV business because of the change in exchange rate, Game as well?

Nobuyuki Oneda

The 120 yen, well, at today’s exchange rate, 125 yen and 97/98 yen, then operating income will be about 90 – further 90 billion yen. This will be an impact on operating income. That said, we hedge our positions. So it will be offset by 30 billion yen. But this offset will be in the non-operating, but before tax income our impact will be about 60 billion because 30 billion goes to non-operating income. Now, TV, 140 yen and 100 yen are the assumptions. But several tens of billions yen of impact if 120 yen instead of 140 yen or 90-something instead of 100 yen. And impact by segment, we would like to refrain from disclosing this. As far as Game is concerned, while euro has a major impact on Game business, I would say 30 billion yen impact because of the exchange rate change, because we are assuming 140 yen per euro – so given present level. I think – and that is incorporated in this estimate. If that is the case, 90 billion yen impact on operating income, excluding hedging, then 70 billion, 80 billion red ink for TV and 50 billion for game, well, yes, if we take just the impact of exchange rate movement, that might be possible.

Source

 



My Mario Kart Wii friend code: 2707-1866-0957

this will also cut into nintendo's profits as well, luckily its got the resoruces to not be as badly affected



 nintendo fanboy, but the good kind

proud soldier of nintopia

 

Short Answer : Yes, it's possible



I think the world economy is hurting them the most.



 

 

 

 

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sony needs a bail out, or they could borrow from china.




 

woopah said:
this will also cut into nintendo's profits as well, luckily its got the resoruces to not be as badly affected

Nintendo has a ton of advantages over Sony to weather this storm:

1- Higher profit margins (20-30% as opposed to 1-4% in Sony's case)
2- Their products are more recession-proof
3- No debt (as opposed to $10 billion in debt in Sony's case)
4- They make money on everything, not just software
5- None of their products is declining (in Sony's case the PSP and PS2 are)
6- From what I read, they have a higher proportion of expenses in foreign currencies (not sure about this one)

 



My Mario Kart Wii friend code: 2707-1866-0957

The last earnings estimate used ratios of Yen/Dollar 100 and Yen/Euro 140. It's currently 91.25 and 121.9 respectively. Since they were barely squeaking out a profit with the previous ratios, it's hard to see how they are going to avoid taking a loss.



Yen vs. Dollar is a problem

but Yen vs. Euro is killing Sony.


That's why all the talk of a PS3 pricedrop is merely wishful thinking.
(And the price of the Wii ain't going anywhere either, but that's not an issue for Nintendo)



If the Yen is so strong, that pretty much confirms that Japan will be the first to see a price drop. With the games releasing in 2009 in Japan it would also be a very smart decision, solidify the PS3 as the HD console of choice.