Runaway early sales of its latest Dreamcast games console have not proved enough to pull Japan’s Sega Enterprises Ltd back into the black, prompting an announcement on Friday of a massive restructuring plan. Predicting a third straight consolidated net loss when the current financial year ends March 31 next year, Sega said it has decided spin-off its nine games software divisions in a bid to raise money and cut costs.
Sega last week revealed that US sales of its Dreamcast console, the first of a new breed of internet connected games platforms, have already passed the 1 million unit mark. The Dreamcast launched in the US on September 9, and had not been expected to breach the 1 million unit target ahead of the Christmas consumer buying season (CI No 3,798). Sega now expects to ship a further 1 million units by March 31.
Welcome as the Dreamcast’s start has been, it has come at the expense of a massive development effort among its games development units which have notched consistent losses. Sega said its plan to spin-off its games software divisions is expected to realize between 20% and 30% cost savings against an annual development budget that has spiraled to 30bn yen($286m) and hit earnings.
As early as January, Sega said it plans to realize 5bn yen ($48m) from the sale of one development division to CSK Research Institute. The Institute is a computer systems development company jointly owned by Sega and CSK Corp, which is Sega’s largest shareholder.
Earlier this year, Sega struck a similar deal with CSK, when the two companies took 70% and 30% respectively in International Investment, a company created specifically to develop internet services built-around the Dreamcast (CI No 3,759). That deal was described as speculative by analysts, who considered that Sega was seeking to lighten its debt by cashing in the high market valuations of internet stocks.
The model appears to be working for Sega, which now says another eight of its development units. They will be taken over by new wholly-owned subsidiaries to be established by April. At least half of the subsidiaries are scheduled for listing by 2002, a company official said, and all are expected to be self-supporting.
