Will PlayStation 4 Prove to Be Sony’s Savior?

Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The unveiling (if it could be called one) of Sony’s (NYSE: SNE) PlayStation 4 (PS4) was unique in its own way. There was all talk about how it will work, interface, graphics et al, but the device was not shown. Games were projected on the screen, but the actual device was hidden, leaving it on those present to imagine how it will look. At best it could be called an announcement of intention that kept everyone guessing. Officially, Sony announced that it would be released in the holiday season of 2013.

The other thing that people might be wondering after the event is the reason behind it. Was it to lift market sentiment in an effort to help the underperforming Sony stock?

Sony Corporation

Sony, popularly known as an electronics and entertainment company, is engaged in a host of activities. Apart from electronic and entertainment products that include televisions, cameras personal computers and a wide range of audio and video equipment, semiconductors, optical pickups and recording media and systems, it also provides life and non-life insurance , banking and credit finance services. The company’s mobile segment offers Sony Ericsson mobile phones.

Sony has been reporting losses continuously for the last three years. The results for FY 2012-2013 are awaited and will be released sometime after March 30, 2013.

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Source: www.finance.yahoo.com

The company’s dismal performance is reflected in the performance of its stock:

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For the last five years, SNE stock has been lagging behind the benchmark S&P 500 Index, more so in the last three years.

Sony had every reason to lift sagging sentiments with some good news, but was it market sentiment that it was hoping to boost or its own? It may benefit the company’s partners in PlayStation 4 as well.

A Brief Introduction of PlayStation 4

PS4 will be the fourth version of the company’s non-portable gaming console, the first in seven years. As it is with new versions, Sony will upgrade hardware and offer the latest graphics and processing technology. The new version features:

  • Processor: A PC-type processor (x84 AMD Jaguar 8-core), the ultimate in gaming processors.
  • RAM: An 8-GB DDRS RAM, again the best available.
  • GPU: A huge amount of graphics processing, made available with 1.84 teraflop GPU.
  • USB 3.0: USB 3.0 transmits data 10 times faster than the earlier USB 2.0.
  • Optical drive: Blu-ray/DVD optical drive for users who prefer gaming discs over cloud and Internet-only gaming.
  • Controller: Dual Shock 4 Controller that features a button for sharing and/or viewing the last few moments of game-play and a touchpad.
  • Social media connectivity: The sharing button also allows social media integration for digital connectivity with friends.
  • Software: New features in software include ability to connect PS4 to PlayStation Vita, high speed streaming and an on/off button that allows resuming the game from you left even when you turn the console off in the middle of a game.

Market Response

If Sony was hoping to lift market sentiment with the so-called unveiling of PlayStation 4, it failed miserably. The stock fell 2.7%, losing more than what it had gained in two days prior to the event. However, the real impact on Sony’s revenues/profit as well as on the performance of its stock will be known only after PS4 is launched and made available.

Although not related to the PS4 event, shares of Advanced Micro Devices (NYSE: AMD) also did not also respond positively on the day after. The stock took a 7.8% hit on the day after the event. AMD is a global semiconductor company whose x84 AMD Jaguar 8-core processor will power the PS4. For the last two quarters, AMD has been missing revenue estimates and writing down inventories. PS4 could well be a heaven sent opportunity for the company, which has been gasping for fresh air due to fall in PC and server businesses.

Activision Blizzard (NASDAQ: ATVI) is another stock to watch. The company announced that it is developing Diablo III for PlayStation. The PS3/PS4 version of this award winning action game will be based on the same critically acclaimed core experience of the PC version.

ATVI is a developer and publisher of online, personal computer (PC), console, handheld, and mobile interactive entertainment software. Apart from Diablo, the company also has popular games such as World of Warcraft and the Warcraft and StarCraft in its portfolio.

What the Future Holds for Sony

A bit of history will not be out of place here.

Sony’s PS3 was launched in November 2006. Initially, it did not sell very well. However, in the following months the stock rallied, touching a high of $57.09 in June 2007. The stock traded between $40-50 until June 2008, after which the downfall started.

History may repeat itself when the PS4 is released in the “holiday season 2013.”

However, there is a slight difference this time. A weak Japanese yen means that Sony’s exports will be valued higher this time. As against 117.88 yen to a dollar in November 2006, it is now 93.20 yen to a dollar. Moreover, Sony is now more alive to consumer needs.  As Sony Computer Entertainment President Andrew House said at the event “now the consumer is changing us,” whereas earlier Sony was changing the “gaming landscape.” Considering customer preferences, Sony has changed its focus. “From mobility to multiformat play, to greater community engagement, as well as platforms designed to enable access to entertainment, social media and more, the demands for a new platform were clear.”

From what was revealed at the event, the new PS4 has all that it takes to attract gaming enthusiasts. I expect that it will sell and give Microsoft’s (NASDAQ: MSFT) Xbox 360 a run for its money this holiday season.

Xbox 360, which sold 281,000 units in January 2013, has been the number one gaming console continuously for the last 25 months. Also, there are expectations that Microsoft too is likely to come up with a new version of Xbox 360. The rumors, which have been going around for quite some years now, have gained fresh momentum after the news of PS4. The tussle between the two would be interesting to watch if a new Xbox version is also launched this holiday season.

Although not related to PS4, the news that this March Sony will post a $1.23 billion operating profit as a result of the sale of 6% of its consolidated subsidiary, M3, is a big plus for the stock. At the CMP, Sony looks attractive for holding long term.

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