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Friday, September 22, 2006

Sony Starts A Price War (SNE)(MSFT)

It would seem that with Sony's dismal performance in the stock market and its problems with everything for burning batteries to repeated restructuring of management, it would not want to shave margins on its huge PlayStation franchise. But, it will.

Sony will drop the price of the PlayStation 3 from about $515 to $410, at least in the Japanese market.

The move plays into Microsoft's hands. It has the larger balance sheet, the more powerful capacity to market its Xbox, and the ability to wait Sony out.

With Ninetendo's new, cheap game console hitting the market, the move by Sony to gain share may be viewed as smart. But, raising prices later may be very, very difficult. A share gain with smaller operating profits for Sony Computer Entertainment, the unit that makes and markets PlayStation, may be a deal with the devil.

After a nice recovery from $31.80 to $52.29 over the last 52-weeks, Sony is back down to $41.46, a drop of about 20% in about three months.

Even if the price cut drives unit sales for PlayStation, Wall St. should not be fooled. The move may damage Sony's financials longer term.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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