Questions are beginning to be asked about Sega Enterprises Ltd’s decision to go right out on a limb and build its first 32-bit games console around the Hitachi Ltd Super-H RISC – the box uses two SH-2s and an SH-1 – following the company’s move to slash its annual profits forecast. The most immediate cause of the company’s problems is that it misjudged the rate at which the market would switch to 32-bit – and in Nintendo Co Ltd’s case, 64-bit – consoles, and is having to write down or write off its worldwide inventories of 16-bit games players, for which it will take a $200m exceptional hit. But the company also blames losses at its US subsidiary, and these are being blamed on a relatively poor reception for the 32-bit Saturn in competition with Sony Corp’s Playstation and Nintendo’s N64, both of which are built around derivatives of the MIPS Technologies Inc R-series RISC. As a result of these woes, the company cut its forecast for net profits at the parent company for the year to March to $46.1m from the $139m it forecast in Movember. At the group level, it cut its forecast almost in half, to $46.0m from the previously forecast $86.9m. Now that we know our sales for the Christmas shopping season, we will wipe out worldwide inventories of 16-bit machine-related products, worth about $60.8m, Sega said. Sega of America holds about $26m of the inventories to be deep sixed – the company said it would either sell the unwanted products at a discount or scrap them.The company says the write-offs will free it to address its problems in the marketplace, but it will take a concerted effort by Sega to prevent the Saturn coming to be regarded as a limping number three in a three-horse race – Nintendo reckons it has sold 1.6m N64s since its launch in September in the US, where Sega reckons the US Saturn total will only reach 1.8m in March – and it was launched in 1994. Underlining the perception Sega needs to reverse, Keith Benjamin, entertainment analyst at Robertson Stephens in San Francisco told the Daily Telegraph They chose to get the price down a little earlier than the others but accepted an inferior technology. They made a calculated decision about pricing and technology and lost. They underestimated Sony’s ability to sneak into the business. Sega is a brilliant marketing company with a lousy product. Both PlayStation and Nintendo 64 are more powerful boxes which elicited more consumer support. There isn’t room for a third, and Sega is being left in the dust. Sounds like a crisis crying out for assistance from Sonic the Hedgehog.
