Sony's (SNE) - Get Report PlayStation 3 game device got off to a strong debut over the weekend, nearly selling out in Japan and proving wrong many critics who had predicted that a high price point would hurt sales.
, a Japanese video game magazine publisher, Sony sold 54,600 units of its 60-gigabyte model priced at about 60,000 yen ($508), and 33,800 units of its 20-gigabyte model, priced at 49,980 yen ($422).
Still, demand for the PS3 far outstrips sales, as Sony was able to ship only 100,000 units for the launch. Sony had sold out nearly 1 million units when it launched the PS2 in 2000. Video-game fanatics have been queuing up outside stores in Japan to be among the first to get the PS3. The consoles are trading for anywhere from $1,000 to $2,000 on online auction sites such as eBay.
Shares of Sony, which trade as American depositary receipts, were up 26 cents, or 0.7%, to $40.10 in recent trading. In the last six months, the company's stock has been down 15.6%.
The preliminary PS3 sales data could be good news for investors worried by recent criticism surrounding the company's recent steps. Sony got flak for the pricey consoles and the delays that have surrounded the launch of the product. The PS3s that were initially supposed to ship in the spring had been pushed back to November. "The positive press around the PS3 now and sales figures should help the stock," says James McGlynn, portfolio manager for Summit Everest Fund, which owns shares of Sony.
That Sony would sell out the PS3 was never in doubt, he said. "The question is, can they make enough to keep up with the demand?" he said.
Sony has yet to answer that convincingly. The production for PS3 was marred by glitches, and the company has had to push back its launch in Europe to March 2007. The company plans to offer the PS3 to U.S. consumers on Friday.
The road to domination in next-generation consoles won't be easy for Sony. The company, which has so far been the market leader, faces increasing challenges from relative upstarts, including
. The software giant has been rapidly building a strong community of users for its Xbox 360 console.
Sony's Japanese rival
also plans to release its next-generation console Nintendo Wii, a move that could eat into Sony's sales. Nintendo Wii releases on Friday in the U.S. and Dec. 2 in Japan.
Microsoft, which released the Xbox 360 last year, expects to ship 10 million units by the end of 2006, compared with the expected 2 million units of PS3.
Sony's recent second-quarter results showed that the company is likely to incur more than $1.7 billion in PS3-related losses during the current fiscal year. Valuation losses on PS3-related components amounted to nearly a half a billion dollars in the second quarter, said Yohei Kanazawa and Kota Ezawa, analysts with Citigroup in a recent research report. The duo believe near-term earnings from the PS3 will weigh down the share price; they have a hold rating on the stock.
According to their estimates, Sony is currently trading at around 20.7 times its fiscal 2008 EPS estimate. However, that's still lower than the company's historical average price earnings ratio of 24.1, they said. Citigroup holds Sony shares and has an investment-banking relationship with the company.