By
The Associated Press
TOKYO - Sega Corp. said yesterday it will stop making its Dreamcast home video-game machine on March 31, conceding defeat in the console-making business to its Japanese rivals Sony Corp. and Nintendo Co.
Sega said it will start making games for Sony's PlayStation2 and Nintendo's Game Boy Advance machines and was in talks to make games for Microsoft Corp.'s Xbox and Nintendo's Game Cube, which are expected to go on sale later this year. Sega also plans to continue making new games for Dreamcast next year.
Sega's greatest strength is in its software lineup, which includes Sonic the Hedgehog games. Sega said it planned to focus on the software business, including creating games for handheld and Net-linking devices.
As it made the Dreamcast announcement, Sega more than doubled its projected loss estimate to $501 million for the fiscal year ending in March and made clear it was still in trouble.
Sega must get rid of its worldwide Dreamcast inventory of 2 million machines, shouldering costs of about $601 million, Sega chief operating officer Hideki Sato said. Sega was unable to boost sales during the Christmas season, despite slashing prices to $149 from $199 in the United States.
Starting Sunday, Sega will cut prices even more in the United States, down to $99.95, said Charles Bellfield, a spokesman for Sega of America. Sega promised to continue to provide repairs and parts to Dreamcast owners.
Dreamcast sales totaled 2.3 million worldwide - about half of its target. Dreamcast sales in the United States totaled 1.35 million - far short of the company's original goal. About 280,000 Dreamcast consoles were sold in Japan. Sega's software sales also suffered as a result, it said.
Sony has sold about 76 million of its original PlayStation consoles worldwide. Nintendo, the maker behind the Mario and Pokemon games, has sold 30 million Nintendo 64 consoles and 105 million Game Boy machines worldwide.
"The world of games is changing, so Sega must change, too," said Sato, adding that it no longer made sense to make games for just one machine.
Eiji Maeda, analyst with the Daiwa Institute of Research in Tokyo, said Sega is likely to become profitable in the first half of next fiscal year.
"Sega has great talent in developing software," Maeda said. "And Sega has an edge in developing Internet-linked games."
Sega said it was setting up a special team headed by Tetsu Kayama, who was named co-chief operating officer yesterday, to come up with a restructuring plan next month.
Sega said it would not suffer a cash shortage partly because Sega chairman and CEO Isao Okawa was donating $730 million of his own funds to help bail out the company.
Investors are also likely to welcome Sega's decisions. After Sega said last week it was considering pulling out of game machines, Sega share prices soared more than 50 percent over three days in Tokyo. Sega shares rose 2.7 percent yesterday to close at $14.50.
