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Contributors: Douglas McIntyre Jon C. Ogg

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Saturday, September 09, 2006

Weekend Edition: Video Game Stocks Dodge a Sony Bullet

"video game stocks are lucky that Nintendo got their IBM microprocessors in
time because Sony's lower US-deliveries and international delay would have

There were reports last night that IBM (IBM) had shipped its microchips for Nintendo's Wii upcoming video game console and they were in Nintendo's control. The critical issue here is that this will allow a near-November end launch date.

Wii is pronounced "Wee."

This comes on the heels of another botched move by Sony delaying the international release of its PS3 and cutting the US allocated shipments in half. Nintendo has claimed that it wants to sell 6 million consoles by the fiscal year ending March 2007. That may be a very rosy estimate, but with Sony essentially taking a Windows Vista approach to launch (delays and problems galore) this "could" be closer to a reality.

Since 2000 Nintendo has sort of been thought of as the kids-play consoles since the PS2, Xbox, and Xbox 360 have gone gangbusters. Needless to say, PC gaming has been a true winner as well. The interesting thing here is that the price is much lower than the higher priced PS3 and the Xbox 360, at around $280.00 for Wii. The PS3 runs $499 for the base model and $599 for the souped-up model. The other interesting difference in the Wii is thatthe size is much more compact, so therefore more portable.

This delay and lower shipment for Sony's PS3 is probably going to push back some game studio projections by a quarter, so those prior targets given in the summer may need to get trimmed. Missing a Q4 shipment is a killer. If you don't think so ask any PC-maker that was counting on a Q3-Q4 Windows Vista release. That may not entirely be a fair comparison since Microsoft has a near-monopoly in operating systems in new PC's and since Sony is one of 3 major platforms (4 with computers), but you can get the drift. Sony (SNE) ADR's are even up 0.5% at $42.59 because the street was somewhat expecting some additional delays.

Electronic Arts (ERTS) has the largest game base with 5 canned games set for release with the PS3, but Electronic Arts also has the most diverse game distribution among platforms than any other US game publisher. Take-Two Interactive (TTWO) also has 3 titles for release with the PS3. Activision (ATVI) has 2 games set and may have 3 by the launch. THQ Interactive (THQI) also seems to have more Nintendo exposure than others as well, so it won't mind the Sony delay as much as some.

If you are wondering the scope of outstanding game consoles, Sony has sold almost 110,000,000 PlayStation 2 consoles.

Recent blog posts had Microsoft cutting the price of the Xbox 360 in Japan, but it was in actuality a lower price for an introductory low-end unit priced around $258 based on recent exchange rates.

The funny reaction is that an analyst note based from Cowen & Co. has THQ (THQI) trading up over 7% at $27.32. Electronic Arts (ERTS) is also up 4.4% at $53.12, also a near-term high.

The Sony unit cuts in the US that would have been deemed bad for GameStop (GME) have been offset by the Nintendo Wii strength, so its shares are up 2.7% at $44.87. If the company somehow gets hurt by this too much, then this will create an even larger opportunity for the longer-term players than what we were looking at last month.

It probably would not be fair for us to not discuss Dell's (DELL) discussion in Austin yesterday at the Austin Game Conference. The company did after all buy the Alien brand of super gaming and work PC's and laptops. Michael Dell did note that he prefers Blu-ray over a rival HD-DVD format, and Blu-ray delays were the real reason behind the Sony PS3 delays. Alien is about as far as Dell is going to take the brand for video games as it does not plan to enter the gaming console market. That is at least one smart move for the company since they only make hardware. Microsoft has tolerated its console losses for video game sales and royalties that will/should eventually make it profitable; and Sony will lose money on the raw console sales of PS3, but it too makes money on the PlayStation design royalties from other studios and the games it makes or owns. Shares of DELL are down 0.9% at $21.53 today.

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