Sony shares drop

PlayStation 2 delivery won't meet expectations

Successful marketing and sluggish production proved a volatile combination for Sony on Wednesday, as investors drove down the consumer-electronics giant’s share price on news that U.S. shipments of Sony PlayStation 2 vidgame consoles won’t meet expectations.

“Sony (has) used all of their marketing expertise to push PlayStation, but it’s a leading-edge technology that didn’t develop fast enough to keep pace of the production expected,” said analyst Lee Isgur of Corporate Counsels, an investment consultancy in Woodside, Calif. “Either that, or marketing hype created so much demand that nothing could have filled it.

“We do know that Sony’s marketing muscle was stronger than their engineering muscle.”

Sony shares dropped $9.63, or 9%, to close at $99.38 on Wednesday.

The stock’s decline came amid news that Sony will ship only 500,000 units for sale in the United States starting Oct. 26 and a total of 1.3 million by the end of the year, due to a shortage of certain component parts. Some 1 million PlayStation 2 units had been expected for the launch and a total of 2 million by year’s end.

Execs of the Sony Computer Entertainment unit staged a conference call to discuss the situation with press and analysts after the close of market trading on Thursday, and the company stressed that it will meet its forecast of 3 million units shipped by March 31.

Thousands of prospective purchasers of the new vidgame console already have plunked down cash deposits for the device. Barnes & Noble unit Babbage’s alone reportedly has taken more than 200,000 deposits.

“(We) are continually overwhelmed with the amount of support garnered on behalf of the product from retailers, consumers and the third-party development community,” Sony Computer Entertainment prexy Kaz Hirai said.

Sutro & Co. analyst James Lin said the fact that production shortfalls also have plagued other tech companies this year couldn’t shield Sony from investors’ wrath.

“It’s a black eye from a PR standpoint,” Lin said.

The fallout also dragged down game-software stocks. Activision was down 13.5% and Electronic Arts 11%.

PlayStation 2 was introduced in Japan in March, selling a record 980,000 units in its first weekend. The next-generation vidgame console features advanced graphics, can play digital video and audio discs, and offers high-speed Internet capabilities.

In August, Sony postponed the introduction date of the PlayStation in Europe to Nov. 24 to focus on markets in Japan and the United States.

The high costs of launching PlayStation 2 were cited last month when Sony forecast an earnings downturn in the current fiscal year for the games unit, normally a cash cow division for Sony. Then, on Aug. 27, Sony announced it would issue bonds to raise $1.4 billion to offset the costs of launching the vidgame console.

Sony rival Nintendo plans to launch its next-generation vidgame console in Japan next July and three months later in the United States.

Bloomberg News contributed to this report.

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