Sega Back to Profit Despite Slack Sales

Japanese video game maker Sega Corp., which has seen talks collapse on two proposed alliances recently, returned to profitability for the fiscal year just ended despite faltering sales.

Sega, which makes the Sonic the Hedgehog games, posted a profit of $26 million, or 3.05 billion yen, for the year ended March 31, a reversal from the 17.8-billion-yen loss racked up a year earlier, the Tokyo-based company said. Sales fell 4% to $1.7 billion.

The numbers were in line with the revised forecasts Sega gave earlier this month, which were better than its outlook in February. But the results fell far short of the booming revival in video game sales Sega has promised.

Sega recovered from the costs linked to dropping its Dreamcast console as well as for streamlining its operations by dropping money-losing subsidiaries to focus on a turnaround as an entertainment company.

Sega acknowledged defeat to Japanese rival Sony Corp.’s PlayStation2 and gave up making Dreamcast in 2001.

Sega also announced that President Hideki Sato will be replaced next month by Hisao Oguchi, who has overseen game development during his two-decade career at Sega.

Oguchi, 43, stressed that Sega must become stronger in North America, where the market is expected to grow this year while stagnating in Japan.

Sega will look into possible alliances with U.S. companies and may set up a design team in the United States, he said.

“The trend in games changes very quickly, but big business opportunities lie there,” Oguchi said.

Oguchi has shown talent for creating popular games and has set up a successful bar in Tokyo filled with electronic dart games.

Sega said it plans to break even in fiscal 2003 in the consumer video game segment by returning to basics, such as beefing up its Sonic series. It lost $75 million in that sector in fiscal 2002.

It also will reduce the number of games it makes a year to concentrate on more profitable titles. Of the 106 games Sega produced in fiscal 2002, half lost money. Of the 77 titles planned for this year, only about 20% are likely to lose money, Sega said.

Sega sold 10.66 million games in fiscal 2002 and plans to sell 9.25 million games this year. Sega predicts its net profit will more than double in the fiscal year through March 2004 to $65 million despite a 2% drop in sales to $1.7 billion.

This month, Sega said negotiations with Sammy Corp., a “pachinko” pinball-machine maker, had fallen apart. The companies had announced the talks toward a possible alliance in February. The same day, Tokyo-based rival Namco, which makes Tekken fighting games, withdrew a merger offer it had made to Sega. A Sega-Namco merger would have created the biggest video game maker in Japan.

Japanese game makers are increasingly opting for partnerships as competition in the industry heats up.