"Sony's shares fell as much as 4.4 percent on Monday after Merrill Lynch (MER) said in a research note last week that the PS3's launch might be delayed by six to 12 months and the cost of production could initially approach $900 per unit." UGH! $900 per unit to make? you thought $400 a system for the 360 and $60 games were bad, this could make things worse. Video Game Crash Part II Here We Come! PlayStation 3 Launch May Be Pushed Back Monday, February 20, 2006 TOKYO — Sony Corp.'s (SNE) launch of its next-generation PlayStation 3 video game console could be delayed if industry specifications for some of its technology are not finalized soon, although it is still aiming for a spring rollout, it said on Monday. The launch of the PlayStation 3 (PS3) has been the subject of heavy speculation in the industry as expectations are high for the powerful machine, which will feature cutting-edge technology in its DVD player, processors and graphics. PS3 will be competing with Microsoft Corp.'s (MSFT) Xbox 360, which went on sale last November, and Nintendo Co. Ltd.'s Revolution, which is expected later this year. "We're aiming for spring, but we haven't announced specific regions," a spokeswoman for Sony Computer Entertainment said, adding that it was waiting for the final specifications on some of the technology it is using in the PS3, such as that related to the Blu-ray DVD drive and to input and output video and sound. The specifications are decided by industry consortiums. "We're waiting for them until the last possible minute, but the launch could be pushed back if they're not decided soon," the spokeswoman said. If the PS3 is not ready in time, the company will choose the next best timing for the launch, she said. Sony has been promising a spring launch but has been deliberately vague about exactly when that would be. Analysts have said it could mean anytime between March and the end of Japan's rainy season in June. Sony's shares fell as much as 4.4 percent on Monday after Merrill Lynch (MER) said in a research note last week that the PS3's launch might be delayed by six to 12 months and the cost of production could initially approach $900 per unit. The shares closed down 3.6 percent at 5,300 yen, underperforming the Tokyo stock market's electrical machinery index IELEC, which fell 1.85 percent. Manufacturers typically sell new game consoles at a loss initially to gain market share so they can later make money by selling software — a $25 billion global market. But the higher-than-expected cost estimate by Merrill means Sony will have to take a much larger loss on each PS3 unit it sells or sacrifice market share to Microsoft, which is selling its Xbox 360 for about $400. Sony currently has about 70 percent of the global market for game consoles, but some analysts have said it could lose as much as 20 percentage points to Microsoft, which is making an aggressive push to increase its 15 percent share. Nintendo, which also has a 15 percent market share, is taking a different strategy as it aims to increase the number of game players with a unique console and original games. Merrill Lynch also downgraded its rating on Sony to "sell" from "neutral," saying in its note that Sony could see its earnings decline in the business year from April. SPRING LAUNCH 'UNREALISTIC' Most analysts took the report in stride as they already expected Sony to launch the PS3 this summer in Japan, followed by a U.S. launch before the Thanksgiving holiday in November. They expect a launch in Europe in early 2007. "No one is seriously thinking a spring release is realistic any more," said Hiroshi Kamide, an analyst at KBC Securities. "If I were Sony, I wouldn't be that worried about releasing as soon as I possibly could." Kamide said Sony may wait until it is fully prepared, especially after seeing slow initial sales of Microsoft's Xbox 360 even though it was launched in time for the holidays. Having led the worldwide console gaming market for the last decade, Sony is counting on the new machine to dominate in all aspects of networked home entertainment — games, movies, music and more. Yuta Sakurai, a senior analyst at Nomura Securities, said the price of the PS3 was more important than its timing. "I don't think it matters when Sony launches in the U.S. as long as it's in time for Christmas," Sakurai said. He expects Sony to try to launch the PS3 in Japan in early summer, in time for the big selling season when schools go on holiday in July. Sakurai estimated that Sony could charge at most 50,000 yen ($420) for the console. Retail price estimates by analysts in Japan vary widely from about 40,000 yen to several times that much, primarily because of all of the technology that is packed into the machine, which is expected to be the size of a laptop computer. The PS3, which can be played simultaneously by up to seven people, will be powered by the "Cell" chip, which is significantly more powerful than Intel Corp.'s Pentium 4, the most common chip for today's PCs and existing game machine processors. It will also feature a super-powerful graphics chip, a built-in Ethernet port for high-speed Internet access, and Blu-ray, a next-generation DVD format backed by Sony. Analysts generally agree that Sony will do whatever it can to avoid missing the key year-end holiday season this year, but many believe it will be unable to make the PS3 in great volumes. Game development for the PS3 is also seen being delayed because the technology specifications have not been finalised. "Game makers are developing games according to their guesses on what the final specifications might be," said Takeshi Tajima, a BNP Paribas analyst.