Sony PS3 Price Cut Would Benefit Shareholders

The Masters have been searching for a reason to take a chance on Sony Corp. (NYSE:SNE) that goes beyond the recent rush to buy everything Michael Jackson (think Sony's Music label planning a MJ five-album tribute set).  There are decent rumors that a PS3 price cut could come this fall and if that's the case then for SNE it's a classic...

GameSpot.com put out the following article today regarding a new PS3 and what we have all been waiting for - a price cut.  Source: Tech and gaming news site Ars Technica

What we heard: Sony has drawn flack for the PlayStation 3's sticker tag from the moment the top-tier console's $599 price was announced in 2006. And while Sony has released an array of hardware configurations to bring down the price, the PS3 consistently scores the bronze in the US' three-way current-generation console race. Last week, Activision ratcheted the price war rhetoric up a notch, threatening to drop support for the PS3 and PSP as early as 2010 if Sony doesn't enact a price reduction for its flagship console. Currently, the cheapest PS3 hardware SKU is the 80GB model, which was introduced during E3 2008.

Analysts and publishers alike believe Sony will eventually cut the PS3's price sometime during the back half of the year, though the same could be said of 2008. This time, though, industry watchers may be right, as Ars Technica's reliable tipster has informed the tech news site that Sony will cut the PS3's price as well as introduce the 120GB PS3 Slim this fall.

Ars Technica's source had no specific information on how much the consoles will cost or whether or not Sony will alter its SKU offerings. However, the source did say that Sony is currently in the process of flooding retail with the 160GB PS3 SKU, while at the same time limiting supply of the 80GB model. The source noted that most retailers have about a 60-day supply of the 80GB model left in stock.

 

Were Sony to proceed with a price cut, the console maker's newfound competitiveness may be short lived. Ars Technica's source notes that Microsoft may respond to a PS3 price cut with a SKU jiggering of its own. According to the tipster, Microsoft plans on phasing out the mid-level $299 Xbox 360 Pro in July or August, with the publisher introducing a number of attractive software bundles to help move systems. Once supply has sold through, Microsoft will essentially replace the 60GB Pro with the 120GB Elite model, cutting the price of its top-tier system to $299 in early September, the source said.

Of note, Ars Technica's source has successfully sleuthed out a number of retailer-related happenings in the past. Most applicably, the source precisely called Microsoft's across-the-board hardware price cuts for the Xbox 360 Elite, Pro, and Arcade in September 2008.

The official story: "This is completely based on rumors and rampant speculation."--A Sony Computer Entertainment representative. "Microsoft does not comment on rumors or speculation."--A Microsoft representative.

Bogus or not bogus?: Both the Xbox 360 and PS3 (and the Wii, for that matter) have seen weakness at retail recently, with Electronic Entertainment Design and Research analyst Jesse Divnich telling GameSpot earlier this month that all three consoles have "reached saturation at current price points." As such, it wouldn't be unheard of for either Microsoft or Sony to be reevaluating their SKU lineup and strategy. Add in the track record of Ars Technica's source, and this one is looking not bogus.

THE THRILLER AND PS3 DENT

Sony is also cashing in on MJ, Sony Music boss Denis Handlin revealed 100,000 units from Jackson's back catalogue were sold in Australia on Friday.

"The demand is extraordinary. It's not just Thriller. It's right across the catalogue," Handlin said.

A special Michael Jackson five-album tribute set will be rush-released by Sony Music. Ca-Ching.

The pack is expected to include Jackson's masterwork, Thriller and other hits Off The Wall, Bad, Dangerous and Invincible.

With all this happening, Sony Corp. shares are just hanging out at $26 and change.  Of course the potential revenue from Jackson music sales will hardly make a dent on Sony's bottom line and massive $26.69 Billion market cap, but it will help.  Add to it future PS3 sales thanks to a price haircut could really help this monster company get under control.

EVERY DOLLAR COUNTS 

Remember back in May PS3 price cuts and MJ sales were not factored into Sony's forecast a net loss of 120 billion yen in the fiscal year ending March 31, 2010 compared with a 98.9 billion yen loss for the last fiscal year. It would mark the first consecutive annual losses in Sony's corporate history.

Sony announced plans in May to eliminate about 16,000 jobs from its electronics division and close about six factories in order to cut 250 billion yen in annual costs. Now, it plans to do more.  The Japanese electronics conglomerate plans to close four plants in Japan and shutter, or sell, factories in the U.S., Mexico, Indonesia and France, with job cuts exceeding 16,000 workers. Sony Chief Financial Officer Nobuyuki Oneda said there will be even more closures and job cuts in the future.

Fellow Masters, SNE isn't going to rally 10% thanks to this news (not to mention PS3 price cuts are only Rumors), but any unplanned revenue is going to help the company and these days, being ahead of the curve is all we care about as investors.  Happy Safe Investing. 

Disclaimer: No positions in SNE.