Sega on Target for 2001/02

Sega on Target for 2001/02

Sega Corp has recently announced that it expected to hit its 2001/02 earnings targets as its game software rode the crest of the booming global game console market.

Sega, which transformed itself last year into a software maker by ditching its loss-making console operations, projected in November a group operating profit of 11 billion yen ($82.25 million) and a current profit of 10 billion yen for the year ending March 31.

Current profit is pretax and includes gains and losses on securities investments and non-operating activities. Sega has not altered its forecast for a group net loss of 15 billion yen. "We believe we can achieve the targets we announced with our interim earnings," Chief Operating Officer Tetsu Kayama(pictured left) told Reuters in an interview.

Kayama was speaking a day before the scheduled Japanese launch of the Xbox by Microsoft Corp, following its successful debut in the United States last November. Microsoft's foray into the market puts it in direct competition with Sony Corp and its popular PlayStation 2 game console. Sony has shipped more than 26 million units globally.

Kayama, who took up his current post just over a year ago, said that was good news for game software developers like Sega. He painted a bright picture for the business year through next March, during which Sega aims to sell 23 million copies of its game software titles. "I don't think it's difficult to achieve that target," he said. "There should be a lot of positive factors for Sega in 2002."

RESTRUCTURING ON TRACK

Sega, which started out in 1960 as a maker of amusement machines, entered the home game console market in 1983 and soon jostled for top position with Nintendo Co Ltd until Sony joined the fray. Investors applauded Sega's decision to scrap its game console operations but have kept a watchful eye on the company's transition into an exclusive maker of software.

Kayama, who was brought to Sega by its late founder Isao Okawa in 2000 from publishing company Recruit Co, reiterated that the firm's restructuring plans were on track. Last April, Sega announced it aimed to cut its workforce, double annual game software sales to 120 billion yen in 2003/04, and achieve positive cash flow by March 2002.

To help achieve those goals, Kayama said Sega would gradually offload stock it owns in information service firm CSK Corp, its biggest shareholder, and several CSK affiliates. Okawa donated the CSK stock along with shares in Sega to the company last March in an unprecedented step to help ease Sega's financial pain.

The stocks were worth 85 billion yen at the time but have since depreciated, weighing on Sega's portfolio. "We will sell the stocks and use the cash for our businesses," he said. Kayama said profitability in the company's amusement game business was improving as it continued to shut down loss-making facilities. The number of Sega game centres in Japan has declined to around 500 from more than 1,000 five years ago.

U.S. MARKET IN FOCUS

Kayama said growth in Japan's game market would be limited by the country's low birth rate, which would probably mean a fall in the number of avid game players, who tend to be children.

He said the U.S. game market would be the next big growth area and that Sega would put more stress on developing that market. "There are statistics that the U.S. game market will grow to $29 billion by 2005 from $9 billion last year," he said. "We are looking at a four to five trillion yen market here."

Given the potential in the United States, Kayama said Sega's ties with Microsoft were important. Sega may also purchase other software firms to expand its market share, he said without elaborating. The company plans to offer eight titles for Xbox in Japan and five titles for the U.S. market. The company's stock closed up 1.19 percent at 2,120 yen, while the Nikkei average rose 4.69 percent. ($1=133)

SOURCE: Reuters