Merrill Lynch Predicts Massive PS3 Losses, Downgrades Sony

The Japanese arm of analyst and financial firm Merrill Lynch has revised down Sony's forecast and cut its target share price, in anticipation of the launch of the company's PlayStation 3 next-gen console. Japanese news service FISCO has reported that the company's target share prices of Sony has fallen from ¥4,700 to ¥4,000 (from $40.05 down to $34.09). In addition, Merrill Lynch is estimating a multi-billion dollar operating loss for Sony based on its PlayStation 3 launch. The group has said it expects Sony to lose a total of ¥738.9 billion ($6.3 billion) over the next 5 years based on manufacturing and sales costs of the PlayStation 3, which includes complex elements in both its CPU and optical drive arenas. It was Merrill Lynch estimates that earlier this year described the console as an “expensive and difficult-to-manufacture product” based on the “problem points” of the the Cell processor and Blu-ray disc drive, and put manufacturing costs of the console at around $800 at launch, falling to $320 over the following three years. That followed more estimates from the company that suggested the PlayStation 3 would not be launched until late 2006 in Japan and early 2007 in North America. Sony refuted the comments at the time, as it was still aiming for a spring 2006 launch. Though both of these regions will be seeing the launch of the console over the coming week, the European PS3 launch has been delayed into early 2007.