Sony PS3 hit Japan

Throngs of people lined up for hours around Bic Camera, an electronics retailer in downtown Tokyo, to get their hands on one of the consoles. The enthusiasm was so great, clerks with megaphones asked the crowd to stop pushing, warning that all sales would end if there were any injuries.

"Standing in line today is the only way to make sure I got one," said Takayuki Sato, 30, among the buyers who queued up at Bic Camera, snaking around the building in a complete circle.

But would-be buyers were turned away even before the store opened at 7 a.m. The retailer refused to say how many machines it had but said it had wrapped up sales of its entire supply by 1 p.m.

Short supplies were reported elsewhere, too. Sanae Saito, a clerk at Yodobashi Camera Co. chain, said her store's stock had already sold out Saturday morning, although she declined to say how many machines were available.

"It's all sold out with the people in line now," she said. "So many people waited in line."

Plagued with production problems, Sony Corp (NYSE:SNE - news). has managed to ready only 100,000 PlayStation 3 machines in time for its debut in Japan. When it goes on sale in the United States on Nov. 17, some 400,000 PS3 consoles will be available there. The console's European launch has been pushed back until March.

It was not immediately clear whether the console sold out at all retailers, and Sony said that information would not be available for several days.

Ken Kutaragi, the head of Sony's game unit known as the "father of the PlayStation," said he was thrilled by the reception to the PS3.

"I am so happy so many people are waiting," he said in an informal countdown ceremony at Bic Camera. "Thank you for waiting from late last night. Please enjoy next-generation entertainment."

Powered by the new "Cell" computer chip and supported by the next-generation Blu-ray video disc format, the console delivers nearly movie-like graphics and a realistic gaming experience.

Sony will be losing money for a some time on each PS3 sold because of the high costs for research and production that went into the highly sophisticated machine.

Game makers, including Sony, must recoup the exorbitant development costs for the machines by selling software, and programming the PS3's cutting-edge hardware is an expensive and time-consuming task. Only five games were on sale for the PS3's Japan launch date.

Sony expects to lose $1.7 billion in its gaming division in the fiscal year through March 2007.

The red ink is coming at a time when the Japanese electronics and entertainment company, known for the Walkman portable audio player and "Spider-Man" movies, is struggling to stage a comeback.

In recent years, Sony has fallen behind in key products like flat-panel TVs and digital music players. But it has been making progress with a two-year revival by getting back to basics in its consumer electronics operations.

But a major fumble in its PS3 business could prove a huge blow at a time when it's seeing its brand image badly tarnished by a massive global recall of lithium-ion batteries for laptops.

In an unprecedented move, Sony slashed the price for the cheaper PS3 model in Japan ahead of its launch by 20 percent to about $420 in what some critics have scorned as a desperate effort to maintain market share in the face of intense competition with Nintendo Co.'s Wii console and Microsoft Corp.'s Xbox 360.

Wii goes on sale Nov. 19 in the U.S. and Dec. 2 in Japan. The Xbox 360 has had a year start.

Prices vary by retailer, but the more expensive model, with a 60-gigabyte drive, sells in Japan for about $510.

"It's a bit expensive, but I really wanted it," said Hirotoshi Iwadate, a 23-year-old hospital worker, clutching a big bag with his new PS3 after standing in line since 10 p.m. Friday. "I came here straight from work."

Tatsuya Mizuno, analyst for Fitch Ratings in Tokyo, believes it will be hard for Sony to maintain the 70 percent market share domination it has built with previous PlayStation consoles, and Sony will likely lose some of that market to rivals, especially Nintendo. Sony has sold more than 200 million PlayStation series machines over the years.

The PS3 was initially promised for worldwide sales for spring this year but was postponed in March to November. In September, the European sales date was delayed by another four months.

Although Sony is sticking to its plan to ship 6 million PS3 machines worldwide by the end of March next year, Mitsuhiro Osawa, analyst for Mizuho Investors Securities Co., thinks Sony may fall short of that target.

"There may not be enough machines to go around, and people will buy Wii and Xbox," Osawa said. "For all you know, it may take Sony five years to get back the money it's invested in PS3, even 10 years if it doesn't watch out."

Others were more upbeat.

Kazuharu Miura, analyst with Daiwa Institute of Research, said the initial losses weren't surprising and the PS3 business was likely to produce solid profits for Sony by 2008, even if the machine's market share may slide to as low as 60 percent.

"Success of a game machine doesn't depend on market share but on whether it can get a return on its investment," he said.