Sega on Track to Make A Profit

Sega on Track to Make A Profit

by April 19, 2001

In an effort to turn a profit this fiscal year, Sega will take aggressive steps to make money and save money. Unfortunately, this will mean that more than three hundred employees will be laid off by the end of 2001. Here is a report from Bloomberg:

Tokyo, April 19 (Bloomberg) — Sega Corp., which is struggling to be profitable after four straight years of losses, said it will cut debt, costs and the number of workers while it focuses resources on developing video games for other companies.

The company will cut debt by 65 billion yen ($532 million) by March 2004 and reduce the workforce at the parent company to 700 from 1,081 during the current fiscal year to March 2002. The announcement comes as Sega focuses on developing game software for other companies as a way to return to profitability after the company scrapped its flagship Dreamcast console last month.

Sega will sell its stakes in 27 companies, along with some subsidiaries, welfare facilities for employees and, if necessary, its headquarters building in Tokyo. It will also cut its parent- level sales, general and administration costs by 6 billion yen to 22 billion yen, it told analysts, who remained unconvinced.

“This is a big, optimistic plan,” said Takashi Oka, an analyst at Tsubasa Research Institute Ltd., who attended the presentation .

The company expects to break even in the current fiscal year and achieve a 15 percent operating profit margin in the year to March 2003.

Game Spending

The game maker will spend 14.5 billion yen to develop 118 home-use video-games this year, aiming at sales of more than 62 billion yen on 12.7 million copies of games including Sonic Adventure 2, Shenmue2 and 65 titles for the Dreamcast console. In comparison, it took Sega five years and 7 billion yen to develop the original Shenmue, a martial-arts adventure game it created for the Dreamcast console.

“I question whether Sega can sell as many game software titles as it plans,” said Tsubasa’s Oka.

In its arcade game business, Sega targets a 20 percent market share in three years, up from 17 percent now with 528 game centers in Japan. No comparative figures were available.

Sega also said it will develop game titles for Nintendo Co.’s GameCube console, set to debut in Japan in September. The company has already said it will start making games for devices such as Sony Corp.’s PlayStation 2 console, Nintendo’s Game Boy Advance handheld player and Microsoft Corp.’s Xbox console, which is slated for release sometime this year.

The company previously forecast a 58.3 billion yen net loss in the year ended last month. Sega has said it will post a one- time loss of 80 billion yen because of its withdrawal from the video-game console business.

In the Japanese stock market, Sega shares fell sixty yen to 2,525 yen, but considering where the stock has been, that’s not too bad. On the NASDAQ, Sega stock hovered around $5.25 today, but the stock closed down ten cents to $5.