Sony's Investment Potential

SONY'S INVESTMENT POTENTIAL

Prepared by N.A.R.

Report Distributed November 17, 2006

Prepared for

English 302-B19-F06

ABSTRACT

This report explores Sony Computer Corporation, in an effort to provide detailed information regarding the company's most recent stock trends. The purpose of this report is more specifically to show the performance of the company's stock after a video game console release, in order to provide investors with information to help decide whether or not to invest. News articles and stock price history charts were consulted to provide a detailed picture of the company's past and present state and to help make predictions for future performance. The stock charts and news articles referred to in this report are from the companies previous game console release in 2000 to the present. This report is intended to show how Sony's advances in technology should give them a significant advantage over their competition in the near future. Recommendations are offered based on Sony's chance for short and long term growth, compared to the amount of risk involved in investing.

Sony Computer Corporation has been known for producing quality high tech electronics for years. Sony is aiming to continue this tradition with the release of its flagship, the PlayStation 3 (PS3). The PS3 is scheduled to hit stores in the U.S. November 17, 2006. This will be one of the company's first products to include its new Blu-Ray DVD technology. With these this new product being released before the holiday season, now would seem to be prime time to invest in Sony stock (SNE). In January of 2000, after the release of the PS2 the stock skyrocketed to a price of above $150, up from prices between $30 and $50 a share earlier in the year. Sony is hoping for the same turnaround with the release of the PS3 and Blu-Ray DVDs.

Figure 1: Sony (SNE) price history since 1996.

This year the stock is averaging around $40/share which looks almost identical to the same time 10 years ago. With the latest innovations, the PS3 is Sony at its best. The PS3 is being released one year after Microsoft's "XBOX 360" and two days before Nintendo's "Wii". The PS3 will be the most advanced of the three, because the games will be on Blu-Ray Discs which can hold 25 GB (single layer) to 50 GB (dual layer), (Blu-Ray.com). Gamers are always looking for more and the PS3 is equipped with everything needed to give it to them. Standard DVD's have a capacity of less then 5 GB, which is what the Xbox 360's games are based on. However, the PS3's games will be about 10 times more expansive than current DVD based games and twice the capacity of the competitors' "Hi-Def DVDs" which only hold up to 30 GB. This increased data capacity will let software developers make games with vastly expanded levels and extended game play. Because of the increased data storage capacity available to game designers the system requires a processor able to process this data. The "Cell Broadband Engine" or CBE is just that. It has 8 processors that can run different programs in parallel so that the game's physics, lighting, navigation, artificial intelligence, etc. are all being processed at once. This decreases what on-line games tend to call "lag." Lag is the times when games slow down because of the amount of actions that are taking place at once. With the CBE, "lag" is a thing of the past (www.playb3ond.com).

The PS3 is more than a mere game system; it is capable of browsing the internet, a feature that other systems have yet to provide. This means that not only can you play multiplayer games online and download bonus game content; you can also hop on line and browse your favorite web sites. The best thing is that the system does all of this wirelessly, using it's built in Wi-Fi connectivity. It can connect to your wireless home network or other broadband internet. Almost everything is wireless for the PS3, including the blue-tooth remote controls and headsets. The new SIXAXIS controller is wireless and it utilizes Sony's blue-tooth technology. The controller is called, "SIXAXIS," because along with its analog feature it also has some motion sensing features. For example if a player is playing a motorcycle game and leans with the controller it will affect the control of the motorcycle in the game. Along with these wireless connectivity features, the PS3 also features a Blu-Ray DVD player.

The ability of the PS3 to double as a Blu-Ray DVD player is being called "the Trojan horse that [should] give Blu-Ray an unbeatable advantage over rival HD-DVD" (Arnold, "Fox..."). 20th Century Fox Home Entertainment is releasing the X-Men 3 DVD on the 14th of November, hoping to give an additional item for people to purchase while shopping for the PS3. Steve Feldstein, the senior VP marketing communications for 20th Century Fox said, "The demographics between 'X-Men' and PlayStation 3 are a near-perfect match" (Arnold, "Fox..."). With Sony scheduled to have 2 Million PS3's available for sale by the end of this year, Blu-Ray sales should climb along with the system.

Figure 2: PS3 Release, Japan. Figure 3: Japan Release Sales by Model.

Sony released the PS3 in Japan on November 10th and sold 88,400 systems in the first 2 days. Sony only had 100,000 PS3s ready for release in Japan, which means that roughly 90% of the systems were sold out in the first two days. In Japan, 62% of the units sold were of the 60 GB model which was priced at around $510 vs. the 20 GB which were selling for around $425(USA Today.com). In the US, Sony is planning to have 400,000 units ready for the release date and replenishments being shipped throughout the holiday season and on into next year (Kavilanz, "First come"). If the launch is received with the same enthusiasm in the U.S. as it was in Japan (and later in Europe), the systems, games, and Blu-Ray DVD sales should