SMARTMONEY.COM: PlayStation 2's Playmates -2:
Dow Jones Newswires
Hardware
OK, we'll start off with the most obvious name here - Sony. Out of all the competing gaming machines expected to hit the market, Sony's offering will be the most popular, says USB Warburg. The bank estimates that 12.5 million PlayStation 2 consoles will be shipped by March 2001. A year later, total shipments will increase to 31.2 million. And by mid-2005, the firm estimates that 100 million units could be connected to the televisions of game aficionados across the globe. That will comprise the bulk of the 150 million game consoles expected to be in circulation at that time. Those are huge numbers, and it seems Sony could use the help. The company released its financial results for the fiscal first half of the year (ended Sept. 30) Thursday, and the picture wasn't pretty. Sony posted a loss of 68.50 billion yen, compared with a profit of 64.94 billion yen a year earlier.
Yes, you read that right. What was the problem? Well, three areas of Sony's business posted losses: Games, movies and music. New accounting standards, along with write-offs for advertising and development expenses, also contributed to the weakness. Sales rose 4.6% in the six-month period to 3.26 trillion yen. While Sony's gaming-software sales were sluggish, gaming-console sales rose. Still, it should be noted that for the full fiscal year, those lackluster software sales should contribute to wider losses in Sony's gaming division.
Semiconductors
Three names could bask in the PS2's reflected glory, says UBS Warburg's chip analyst Greg Mischou: Mips Technologies (MIPS), LSI Logic (LSI) and Rambus (RMBS). Mips, an intellectual-property (IP) semiconductor outfit, will receive royalties from the PlayStation 2's so-called 'emotion engine' (the powerful and complex PS2 microprocessor) along with another chip that LSI Logic is manufacturing for the machine. Mischou estimates that Mips should receive royalties in the 50-cent to $1 range for each PlayStation 2 sale.
Based on those rosy prospects, Chase H&Q's Eric Chen added Mips to Chase's Focus List Wednesday, saying PlayStation 2 royalties could translate into a 6% increase in sales and could boost earnings by 21% for next year's March and June quarters.
Rambus, another IP chip company, will receive royalties for its dynamic random-access-memory chips used in the emotion engine. Mischou figures the 'chipless' chip company will realize $1.50 to $2 in royalties from each PS2 sale.
As for LSI Logic, it's supplying the input/output processor. That's the thingamajig that allows the PlayStation 2 to be 'backward compatible' - a fancy way of saying that it can play old PlayStation games. Mischou estimates LSI could see $15 to $20 from each machine sold. Software Publishers, as gaming-software makers are known, will also be major beneficiaries. But they won't begin to see huge sales until there's a critical mass of PS2 consoles. Still, the new PlayStation cycle promises to be larger than the last one, and that one wasn't too shabby: Sony has sold 75 million PlayStation 1 machines, according to USB Warburg. Sony has done well for its publishers. Last year, the top 10 PlayStation 1 software makers captured 72% of all gaming-software sales, according to USB Warburg. Analyst Mike Wallace considers such leading U.S. developers as Electronic Arts (ERTS), Activision (ATVI) and THQ (THQI) to be the best PS2 software plays.
Gamers have already started snapping up software. During the week of Oct. 15 to Oct. 21, PS2 software titles accounted for 11% of all games sold, according to market research firm PC Data. What's more, two games, Madden NFL 2001 (made by Electronic Arts) and Tekken Tag Tournament (made by Japan-based Namco) were among the top 10 titles sold during that week.
However, in reporting what amounted to a difficult fiscal second quarter on Thursday, Electronic Arts lowered its guidance for this year and next, citing uncertainty about the timing of PS2 console shipments. (Earlier this month, Sony announced that because of a component shortage it would ship just 500,000 PS2s to North America for the launch - half the anticipated number.) Analysts dutifully cut estimates for Electronic Arts but were largely nonplused, explaining that PlayStation 2 shortages were widely expected. In fact, many remain optimistic about the PS2 software cycle.
'As long as they can get through the squishiness here with the question marks around the hardware shipments, I think that certainly 12 months and 24 months from now, you'll make a lot of money in these companies,' USB Warburg's Wallace explained on the conference call. Of course, that's what these companies are hoping. Now, all the PlayStation 2 has to do is live up to the hype. Let the games begin. |
