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No Quit in Xbox Rivals

Demonstrations of the machine's capabilities drew rave reviews at E3 , in May, and some analysts think the PlayStation 3 will blow away the Xbox 360 when it debuts next spring.

"The PS3 ... is going to be phenomenal," says one fund manager who focuses on the video game sector. "I don't think Microsoft's going to win this console war as soon as the PS3 comes out." (The fund manager has no position in Microsoft or Sony.)

And Sony will be building on a strong foundation. The company has sold nearly 200 million consoles over the last two generations, far outpacing its rivals; Microsoft has sold about 22 million Xboxes.

"There's a lot of people there that have that huge brand loyalty to PlayStation," says Goodman. "If Microsoft can get it close, that's a huge accomplishment for them."

But getting close could prove difficult. Many analysts expect Sony to continue to dominate in Japan, where it has sold 22 million PlayStation 2s and where Microsoft has sold roughly 1 million Xboxes, says Goodman.

That's a lot of ground to make up, he and other analysts say.

"For all the talk about Xbox, if you look at the Japanese sales charts, you would laugh at Microsoft," says Joe Spiegel, a hedge fund manager at Dalek Capital, who is long Nintendo. "It would be impossible for them to do a worse job."

Still, Sony has its own problems. With other areas of Sony struggling, the PlayStation division may feel the need to milk sales of its profitable PlayStation 2 and PlayStation Portable machines, to the detriment of the upcoming console.

Some analysts see the battle between Microsoft and Sony shaping up to be almost equal outside of Japan.

"It's going to be hard to say till the PS3 gets here, but my gut right now is telling me that it will be neck and neck in North America and Europe," says Van Baker, who covers the video game business for research firm Gartner.

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