Tuesday, October 03, 2006

Sony addresses PS3´s technical problems at TGS, reveals ´PS3mote´

Sony has acknowledged the issue of technical problems with PlayStation3 consoles at the Tokyo Game Show, which seem to have been exaggerated by some commentators, according to MarketWatch:

"We heard that some trouble happened at TGS but haven't identified what happened. Therefore, we don't know exactly if it really happened or not and what the cause was," said a spokesman for Sony Computer Entertainment Inc.

Asked if Sony was investigating the issue, he said: "I don't think so." He declined to comment when asked if the PS3s on exhibit at the Tokyo Game Show had to be reset often.

The article further quotes analyst David Gibson from Australian financial conglomerate Macquarie:

"We have heard that at the TGS PS3s had stability problems and had to be reset often. While the reason for this is unknown we suspect it may be due to overheating as a result of enclosing the units and the high temperatures at the venue. We understand that Sony is investigating the issue and has not determined the cause as yet," Gibson wrote.

During the Japanese trade show, a number of sites had posted pictures of PS3 units having to be fanned. There were also some reports of consoles crashing. Kotaku reported:

1080p and 60 frames per second don't mean squat when you're rendering a blank screen. We've seen a couple of kiosks and machines go down, but can somewhat safely assume this is just software related and not an issue with the PlayStation 3 machines themselves.

I have heard numerous first-hand accounts of PS3 games running in decent resolution, but exhibiting ridiculously low frame rates.

In other PS3 news, Sony Computer Entertainment Inc. has revealed the PS3 controller´s new name, which will be ´Sixaxis´, and the ´PS3mote´, if you will. It´s a typical multimedia remote. Picture comes courtesy of Kotaku:

The big question is whether the problems at TGS were caused by hardware or software. Kotaku believed the problems with Ridge Racer 7 to be down to programming. While these guys are far more knowledgable than I am in these matters, I don´t see consoles stalling and particularly the low framerate issues to be a software problem alone. However, the main reason for the former must have been the casing, causing the units to overheat. So these problems do seem to be far less serious than some expected.

Analyst David Gibson believes that these issues, while responsible for a short-term dent in Sony´s shares, do not convince him to retract from his ´outperform´ rating on the company´s stock, though. So, again, the issue seems to have been exaggerated by some punters and there appears to be no danger of a further delay to the PS3 launches as they stand.

EDIT A number of news media have picked up on this story. And some analysts are taking the reports of defective PS3 units more serious than I did. Sony shares lost a staggering 2,75% yesterday.

Even more seriously, investment firm Goldman Sachs lowered Sony's stock rating from ´buy´ to ´neutral´. I contacted them about the matter. I will post their press release promptly, as it is coming in.

Further, the Associated Press reports:

The PlayStation 3 will hit stores in Japan on Nov. 11 and in the United States on Nov. 17. In Europe, they won't go on sale until March, four months later than planned. (...)

Sony spokeswoman Nanako Kato said any problems at the Tokyo Game Show, where Sony, Microsoft and Nintendo showed off rival offerings under the same roof, were likely caused by one-of-a-kind temperature irregularities.

About 200 PlayStation 3 units were clustered together in close proximity and housed in kiosks that concentrated the heat generated by their processors and provided poor ventilation, Kato said. Overheating under such circumstances is a common affliction at trade shows, afflicting not just Sony products but those of its competitors, she said.

At the same time, Nintendo raised its profit forecast by more than 20%, according to Reuters. This is based on strong DS sales, as well as a relatively weak Yen.

Here are charts showing both shares, as traded at the Frankfurt stock exchange, over a three-month period. The red graph shows you the underlying trend, based on the past 200 days.

Sony Corp.
Source: Kreissparkasse Köln

Nintendo Co. Ltd.
Source: Kreissparkasse Köln

This is grave news for Sony, indeed. Such a significant drop in share prices wiped hundreds of millions in stock market value off of the company. In fact, taking Peter White´s May 2005 estimate of Sony Corp.´s value at 36 billion US Dollars as the basis, 2,75% of that almost amounts to one billion US Dollars.

I do have to point out here that I have received only very little formal training in economics, though. Good enough, however, to know that Goldman Sachs is one of the most reputable investment companies. Their rating will undoubtedly escalate the situation further.

EDIT The news just keep rolling in. That´s why I am going to give these edits some structure, in the familiar style of guest commentary.

Sony Shares Drop on PS3 TGS Issues
SCEA calls reports "unsubstantiated."

David Karraker, senior director of corporate communications with SCEA, responded to Next-Gen's inquiry regarding the TGS overheating accusations in Gibson's aforementioned report.

He called Gibson's comments "unsubstantiated" and that "comments related to the alleged failure of PS3 units at TGS are also not attributed to a source."

Karraker offered up SCEA's official defense of the PS3's TGS performance to Next-Gen:
* Despite the report from Macquarie Securities implying that they had heard of reports of PS3's needing to be rebooted at TGS, SCEI are not aware of any instances of this occurring at TGS, nor have we received any reports from third parties to such effect.

* On the Press Day on Friday, and throughout the weekend the PlayStation stand was inundated by specialist gaming media, the majority of whom would have noticed if there had been a general problem with console overheating.

* The environmental conditions at TGS conspire to test any electrical item. In the case of PS3, the combination of pre-production software, running on pre-production debug units, enclosed in demonstration units without ventilation, and surrounded by so many eager fans that on Saturday and Sunday it was almost impossible to move, are bound to prove a challenge.

* If indeed, there was the occasional unit that needed rebooting, it was due solely to the adverse environmental conditions within the Hall and not to any more general problem with PS3.

* PS3 does not suffer from an overheating problem.

PS3 Overheating Issues
Could the 360 problem become a general next-generation issue...

The three-red-light issue faced by Microsoft with the Xbox 360 may not be the only next-generation issue, if a report on BusinessWeek is led to be believed. Citing a recent share drop in Sony Corporation to concerns over the PS3 stability at the recent Tokyo Game Show, it appears that the PS3 will suffer from the scourge of the next-generation, yes the dreaded overheating issue.

Playstation 3 "gets too hot"

Overheating is normal at trade shows, afflicting not just Sony products but those of its competitors. But the markets took Gibson's word and have downgraded Sony from a 'buy' to 'hold' rating so share prices fell.
The Inquirer

PS3 overheating claim rattles investors

PS3 is expected to contain some serious cooling technology. Even Microsoft's Xbox 360 needs a liquid cooling system to prevent the console from overheating, as revealed by a recent attempt to convert the console into a laptop.

Confirmation, of sorts, comes via PS3M magazine in the UK, recently given a demo of the machine. Staffers claim the console is not only very quiet but also very heavy, factors which point to some aggressive, fan-less cooling - not to mention a hefty in-box power transformer.

Unlike the Tokyo demo units, the PS3M machine wasn't sealed in, allowing plenty of space for the heat to escape. Of course, none of these consoles may be consumer-ready equipment, even though Sony is now believed to be punching out PS3s as fast as it can.
Reg Hardware

Sony Shares Fall on Playstation Concerns

The problems come in the midst of Sony's widely publicized turnaround effort under its first foreign chief executive Howard Stringer.

It has been hit with mounting extra costs after some 7 million of its laptop batteries have been recalled on fears they could catch fire.

Desperately trying to catch up to Apple Computer Inc.'s iPod in portable music players, Sony said last month it was delaying the Japanese release of its new digital Walkman by a week until Sept. 23 because of a malfunction of an unspecified part.

It is also fighting to make a comeback in flat-panel TVs after falling badly behind Samsung Electronics Co. of South Korea and other rivals.

Sony shares have plunged over 20 percent since April, before the company's battery recall woes. At the start of the year, shares were at 4,730 yen. (...)

Sony, based in Tokyo, recorded a 32.3 billion yen ($278 million), profit during the April-June quarter on the back of strong sales of flat-panel TVs and digital cameras. That was a big improvement from the 7.3 billion yen loss posted the same period last year.
Washington Post

Sony stock slides 2.75 percent on PS3 concerns
Analysts downgrade electronic giant's stock following reports of PS3 malfunctions at TGS and "disappointing" PSP sales.

The stock drop came after two major analysts downgraded Sony's stock on concerns about its gaming division, Sony Computer Entertainment. "We have adopted a cautious view of the impact of the [Sony] game business on the electronics business this term,'' Goldman Sachs analyst Yuji Fujimori told Bloomberg. Fujimori downgraded Sony's rating from "buy" to "neutral" citing "confusion over the release of PlayStation 3 and concerns [about] disappointing sales of [the] PlayStation Portable," according to the Associated Press. (...)

The downgrades come at a bad time for Sony, which is already coping with a massive recall of laptop batteries it manufactured. On Friday, Dell announced that it was increasing the recall of Sony batteries used in its systems from 4.1 million units to 4.2 million units.

On the game front, the company recently had to delay the PS3's European launch to March 2007 and cut day-one inventory of the console to 100,000 units in Japan and 400,000 units in North America. The company says it will still ship 2 million to 2.4 million PS3s by the end of the year.

Nintendo Shares Jump to 6-Year High on Profit Outlook

Nintendo's market share will probably ``turn up in the next cycle, assisted by the success of the DS portable game console, which the company released ahead of the Wii platform, as well as lower prices compared with competing products, active third-party game developer activity, and the postponement of the PS3's debut in Europe,'' Atsuko Kaneko, an analyst at UBS Securities Japan Ltd., wrote in a note to clients dated yesterday. (...)

Nintendo shares have soared 83 percent in the past 12 months, on better-than-expected sales of DS players and rising expectations the Wii console will lure new users to video games.

Nintendo ups forecast on strong DS hand-held sales

Nintendo has seen red-hot demand for the DS and smaller DS Lite players and software with its innovative hit games like "Brain Training for Adults" and "Nintendogs" as its strategy to broaden the game-playing population to women and senior citizens by offering easy-to-play games paid off.

"We had expected better earnings than the company had forecast for the first half, but it was surprising to see how much it raised its full-year forecast, especially the sales outlook," Nomura Securities senior analyst Yuta Sakurai said.

Nintendo, which trails its rivals going into this holiday season's console war but is the only of the three to say it will turn a profit on its machines from the start, has won praise for its gutsy and contrarian tactics as it battles for ground in the $30 billion video game market.

"There will be so many people who want the console that it will be almost impossible to actually get them at the beginning," Nomura's Sakurai said.

PS3 delay could harm publishers, notes analyst

The PAL delay of the PlayStation 3 could hurt revenues for publishers hoping to have taken advantage of a worldwide pre-Christmas launch of the console, with a potential 500,000 European gamers no longer viable consumers.

That's the opinion of UBS Investment Research analyst Michael Wallace, who also noted that the situation may prompt some publishers to delay the launch of their titles to take advantage of a larger market when the PS3 launches in March.

Wallace had expected Europe to receive 500,000 console units by Christmas, and noted that large publishers such as Activision may suffer from building their Q4 targets around the launch of the PlayStation 3.

Publishers that have hedged their bets with titles across multiple formats, including Nintendo's Wii, had a better chance of making up losses, said Wallace.
Games Industry

EDIT I can now exclusively post Goldman Sachs´ justification for reducing the rating on Sony Corp. shares from ´buy´ to ´neutral´:

What happened

We cut full-term estimates and downgrade Sony to Neutral. Although we
think PS3’s struggles are already priced in, we see heavy upside resistance
near term as: (1) PS3 disruption and PSP’s heavy going may have a larger-than-
expected impact on the electronics business, (2) if large losses in the
game business continue next term, market expectations of sustainable
profits there may fall back further, and (3) business environment for the
electronics business, including TV, is becoming increasingly severe in 2H.
Since we attached a Buy rating the stock has fallen 17% (versus – 5.8% for
TOPIX); over the past 12 months it has risen 26.8% (versus +12.8% TOPIX).

Current view

With the stock apparently having priced in PS3’s uphill battle, it can, as we
have suggested, be considered undervalued in terms of sustainable profit
levels. However, we expect protracted upside resistance in view of (1)
cloudiness regarding the electronics business’s earnings environment in
the 2H, including intensifying TV price competition, after prospects for
near-term upside through the 2Q (for earnings forecast details see page 3),
(2) our belief that it will be some time before earnings improvement in the
game business can be discounted (we anticipate further losses next term).

Our zero-growth DCF model indicates that the current share price
discounts operating profits of around ¥270 bn (net profits of around ¥230
bn). With projected headline profits in the electronics business this term
(before eliminating restructuring and battery-recall costs) of ¥246 bn (OPM
of 4.5%), and projected operating profits in the motion picture and
financial services businesses of ¥95 bn, that implies that the stock price
discounts perpetual losses in the game business of ¥70 bn. In present
circumstances that view of the game business may be inevitable.

Using the above-noted headline profits and factoring in our estimate for FY2007
game business losses (of ¥89 bn) gives per-share theoretical value of
¥4,500 (downside of 4.9%), and theoretical per-share value of ¥5,800
(22.6% upside) if we assume profits/losses in the game business of zero.
Our 12-month target price is ¥5,150 (from ¥5,600). Risks include a halt in
the improvement in electronics earnings due to sharp yen appreciation or
intensified price competition on LCD TVs.

Sources: MarketWatch, Kotaku, Sony Computer Entertainment Inc., Kotaku, Associated Press, Reuters
Thanks to: HUGGINA101, Joystiq, MCV


Anonymous said...

Whatever, I am more into Wii right now.
So you were at the London event..
Did you get to play test some of the games there ?

Whats your overall impression on the launch line up and are you pleased with visual fidelity of the titles that you saw in London ?

Is it me or is Galaxy the only title that is taking advantage of Wii as its supposed to?

Could it be that Nintendos programming tools are to hard to master ?

Mind giving Ubi Soft a call and asking them about specs, limits, tools , shaders, etc.?

Mind asking them about Hollywood?
About their general approach?

Do you think Ubi tried to get as much out of Wii as they could ?

I've heard that Red Steel is based on Unreal2 engine. If true, do you think thats the right choice for a new system like Wii ?

Last but not least what is your opinion on the COD3 shots if I may ask?
I think they paint a wrong picture.

Anonymous said...

And my biggest question for you Falafelkid is, wheather it is vulnerable in your opinion not disclose specs to the public, to potential buyers ?

I for one find this attitude not passable to be honest.

Would you buy a PC without knowing the specs? Or a car without the engine details?

Anonymous said...

not to

Anonymous said...

"To understand Nintendo's business model is to know madness."

Matt C.


Falafelkid said...

I will respond to some questions in more detail soon, am a bit busy at the mo. However, let me just clear one thing up. The above quote by IGN´s Matt was from a mailbag dated June 2005 and concerning GameCube. Please stay on-topic and please post in English.

RGB said...

Would you buy a PC without knowing the specs? Or a car without the engine details?

Ferrari, Lambo, Porsche etc yes I would and so would most others.

PC no, but it depends on what you want it to do. The majority (mass) of people use PC's for browsing and a half decent PC is more good enough to do most things. Infact I am browsing using a junk box at the moment (not my PC).

Then you have gaming machines. What you see is what you get. It plays games and you can tell the kind of things it does by looking at the games and the 'way' its being played.

And on topic. I honestly believe Sony are having issues. More than what people know about, that is my opinion.

Anonymous said...

"It plays games and you can tell the kind of things it does by looking at the games and the 'way' its being played."

So when I look at the recently released COD 3 shots I get the feeling that I pay 300 bucks for Gamecube 0.75 hardware to be honest Grandmaster b

Falafelkid said...

Just a quick word, again, about Call of Duty 3. If this is indeed the Wii version, as claimed, then I would disregard any screenshots that suggest a lower graphical standard.

Falafelkid said...

The Jeux France clip was shot and uploaded in a poor quality, unfortunately. But it also shows that COD3 has some very nice textures and particle effects on Wii.

Anonymous said...

Wii Mii simulation in Flash

Anonymous said...

I don't think that CoD3 trailer is a real Wii video, I think the gun would be a little more jittery (not programming problems, just the arm of the person playing shaking). However, I don't doubt that the wii could put out those types of graphics.

Anonymous said...

I don't think that first video is from the Wii... the biggest clue would be the movement of the gun: it remains locked to the center of the screen as the player turns. In the Juex France video, you can see the gun moving around the screen with the player's aim. In addition, the Juex France video shows some MUCH more responsive turning than the first video.

Cyriel said...

Hey no bashing on the UNreal2 engine. Red steel will be running on the Unreal Engine 2.5 If you think that engine is old and it sucks.Maybe you should take a look at "Bioshock" because it also runs on the same engine. its for xbox360 and PC. its far from ugly...


Anonymous said...

Both sides of the end :

I know I'm in the minority when I say I honestly do not care. Slightly better graphics than the Game Cube work for me with the innovative controller. I don't see myself getting bored after a couple hours of flailing my arms about playing games on the Wii.

I honestly don't think Nintendo is too concerned with people who ARE all about seeing every pock mark on their character's face, but those who see the potential of the system. I say this having a couple close friends who are very interested in the Wii even though they are not gamers. From what I've seen already I think the games look great so far. Twilight Princess, a game I plan on picking up launch day with the Wii, looks great AND fun. I have no doubt it will be even a bit more polished on its release.

Can't shake this feeling that people will end up eating their words and choking a bit as they did with the DS. Nintendo was doomed doomed DOOMED before the DS was released. The "gimmicky, kiddie system with bad graphics" was not expected to sell, according to many (especially readers here).

I think 'gamers' often fall into a habit feeling they know everything and know what will and won't sell. They forget about the people out there who wouldn't mind playing video games but find it intimidating. They forget about the people who just want to pick something up that's light and play for a half hour before heading out. They forget that these people often don't care whether or not they can see the individual nose hairs of the character.


The Wii may turn out to have the greatest gameplay in the world. This is a best case scenario. If that happens, which of the following is more likely to happen in the future?

A) Sony and Microsoft attempt to emulate the Wii's unique control interface while maintaining cutting edge graphics and processing power

B) Nintendo closes the gap between themselves and Microsoft/Sony in the processing power and graphics arena while cutting profit to subsidize hardware costs

See this is where the strategy can backfire. If this new control interface truly is a revolution, other companies will adapt. In that case, it will no longer be a unique trait of the Wii. Nintendo will once again have the credit for being the agent of change but how much will that be worth if they end falling behind again.

Nintendo has always innovated. They have always been profitable. Still the bulk of their fortune lies in the handheld market. The Wii is an interesting departure. Folks are more willing to try it because it does offer something new and potentially better. Only time will tell if it is truly better though.

Personally, I wish they would have innovated while still maintaining specs close to the PS3 and 360. Again, I receive nothing for Nintendo being profitable from day one. When I hear them talking about the profit issue, I actually get pissed off. Rather than lining your pockets from day one, how about including an extra controller.

RGB said...

"It plays games and you can tell the kind of things it does by looking at the games and the 'way' its being played."

So when I look at the recently released COD 3 shots I get the feeling that I pay 300 bucks for Gamecube 0.75 hardware to be honest Grandmaster b

The game hasnt even been released yet so I dont see how you can make that comment and it looks fine.

And if you look at my comment on the 'way' games are being played then you might actually comprehend what I am trying to say.

If you want to choose not buying the system because you dont have any technical specifications then that is quite shallow.

Anonymous said...

LOL die "ps3mote" look soooooo oldskool :D

@ first post: yes red steel is based on U2-engine. well, form what i can see, i'd say it IS the right choice ^^

Anonymous said...

some people should just du us all a favor... like STAYING AWAY FROM THE INTERNET...

Falafelkid said...

...and from the games industry.

Anonymous said...

Because you dont like mr falafel ?

Anonymous said...


Probably Sony will tell us that the they are the inventer of heat issues... for massive damage!