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Sony Bets Its Future On PlayStation II Console?
max_cool writes "Sony has announced that it is splitting its stock in preparation for a strong PS2 release. This could make many people very wealthy or destroy the company. Daily Radar has a full report on Sony's strategy and why they think it will succeed."
I don't understand why anyone would possibly think that this is a risky manuver other than because Sony told them it was. Stocks split all the time. Sony is currently weighing in at 270. Stocks constantly split as they approach the 300 range. This is an awesome marketing ploy if they can convince everyone that they are willing to bet the entire company on this new system. In reality however, if the PS2 flops, stock split or not, sony is still going to be in business. They are far too diversified to let one product destroy them.
If the PS2 is a runaway hit, the company will be in its best shape ever. If not...well, Sony's hoping they won't have to deal with that alternative.
If not...then Sony better have one HELL of a backup strategy. The article is saying "Sony is hoping this stock split will be a success." HOPING? What kind of business practice is THAT? Sure, it's good business to take risks, but what if your risk turns into a Bad Move? Are you going to say "Oops" and pull the white sheet over the company's head? Not smart. Sony needs something to be able to recoup it's losses in the event of the PSX-2 being a flop.
Sony, if I may make a suggestion.....Sell off your AIBO dogs at Cost + 20%. That way, you still make a decent profit, and we get AIBO dogs cheap.
(P.S.: Yeah, this looks like a huge move on Sony's part, but there are MANY divisions to that company. If the PSX-2 fails, it will hurt them badly, but it won't kill them.)
-- Give him Head? Be a Beacon?
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It's a gutsy move if there ever was one, but the timing is pretty good, not to say perfect. Just take a look at the competitors. Both the X-box and the Nintendo Dolphin are falling behind and won't be out until who knows when. There's a lot of money to be made if they put themselves on the market at the right time.
However, they might meet some resistance from the Dreamcast. If that happens and the resitance is enough to shake Sony up a bit, then they are in
dangerous waters with everything riding on a single product. This will be exiting to watch.
- JoJo
From the article:
.18 micron technology is hard to produce, and I've heard reports that Sony is having a hard time churning out enough chips. Tack on the fact that this thing will either be very expensive ($400+) or a HUGE money loser for Sony (which they will then hope to make up for with software profits) and it becomes a very sticky situation either way.
The Stock Market is Strong. After a market slump in the Far East, the time is right for a move like this. In the US and worldwide, tech stocks are generally moving upwards.
Well, they were until today. While you can't base a trend on one or two days, there is legitimate fear (at least in the US) that the Feds will raise intrest rates, and that is affecting the stock market, and we can see that right now, with the NASDAQ falling like crazy today.
Secondly, to know the future we must know history. No market leader in any game console generation has been able to take market lead in the following generation. Playstation 1 leads the current generation, can it lead the next as well? History is not on Sony's side.
Thirdly, price. The
Lastly, programming. Even if the thing sells like hotcakes, you need good games, and word on the street is that this thing is a bitch to program for. Final dev kits aren't even available to most developers, and those that have them site a steep learning curve for programming for multiple processors and the small amount of video memory present on the system. This could hinder game development by the smaller companies out there.
Don't get me wrong, I'm all for PSX2 to succeed, as I think it's a phenominal piece of machinery, but for it to do so, Sony definitly has their work cut out for them.
I'm no financial genius either, but yeah, basically a stock split puts twice as many stocks on the market. Each stock will be worth half as much, but the stockholders will own twice as much stock in the company.
But I don't think the main reason is marketing. I think that when they lanch a product such as this they want to free up some stocks that can increase in value. Or at least, they're hoping they will. Betting it all on one card...
- JoJo
It's obvious to me that Roblimo has a zero percent understanding of the stockmarket. The reason a stock splits is to lower the price of the stock so that people can afford to buy more shares. This happens approximately EVERY DAY in the stock market. Yahoo! has split about fifty times. Splitting a stock just drives up the price of a stock again by making it more attractive to low budget investors. It's not risky at all, and it certainly can't destroy a company. Notice how the article didn't explain how a split could possibly be risky! It basically raved about Sony. Sony is just making it easier to buy shares, and the hype is giving the split a lot of attention.
I guess Roblimo must've bought into Sony hyper hook, line, and sinker.
No comment at this time
$270 per share is generally considered "high", so the stock is split. Theoretically a split has no effect on the company's value (2*135 == 1*270); in practice this tactic increases the volume of trading and usually creates the illusion of increased value.
Drinking will help us plan!
Stocks are split when they get too expensive, so that smaller players can buy in more easily
At $270 it costs $27,000 to buy a hundred shares - the "round lot" quantum on the markets, below which you are typically penalized with higher transaction fees. Splitting, say, 3-for-1 brings the stock price down to 90 and the ante down to $9,000. Many more players can buy in. Typically they do, and bid the price up a bit, which is why stocks typically climb just after a split. (And larger players take advantage of that by buying on news that the stock is going to split - which also bids the stock up a little before the split.)
$270 is way high, so a split is overdue. The split will almost certainly result in the stock going up. If the marketing droids can convince some fools that there is some risk to this and doing it is "daring", said fools will interpret the rise as a success for Sony.
As for any real risk from the move, the only one I can see is a psychological hit if the stock ends up trading at a very low number. But if they don't split it beyond 3-for-1 they'd have to lose half their value after the split to drop below even 45. If the stock value drops by 50% they have some other problem - big time.
Bantam Dominique roosters crow a four-note song. Once you've heard it as "Happy BIRTHday" you can't NOT hear it that way
Enjoy the irony! And please note that many Slashdot readers have debunked that hype for those who *don't* know that a stock split is a ho-hum financial maneuver for companies whose share prices have put round lots (100 shares) out of reach of the very small-time investors who are most susceptible to hype.
More and more, before posting a story like the one above, instead of adding my own words to it I find myself thinking, "Fifty others will say exactly what I would anyway, so why not let them?"
Slashdot has some amazingly bright readers. The debunking always gets done, one way or another, whether by me or by you.
- Robin
PS - remember the Jesux "Christian Linux" hoax that took in ZDNet and Wired a while back, but got exposed here? I had a pleasant IRC conversation with Pudge, the perpetrator, earlier today. Real nice guy.
(I'm often on #slashdot at irc.slashnet.org if you want to continue this discussion, BTW.)
Let me begin by pointing you to the Fundam entals page for Sony on CBS Marketwatch. Sony is currently valued by the market at around $110 billion -- this is the market capitalization. There are, according to this page, 411 million shares outstanding. Over the last 200 trading days, an average of 205,100 shares have been traded each day, or 4/100ths of 1 percent of the shares.
I compared this stock to General Electric, which is another extremely large, established company. In spite of the fact that General Electric is worth about 4 times as much as Sony (comparing market caps), 3 times as many shares in GE as a percentage of its total number of shares outstanding trade each day.
This means that GE is much more liquid (easy to trade) than Sony. That is potentially a good reason to split Sony stock, because the easier it is to buy or sell a stock, the less wildly the price tends to swing. Liquidity is considered a good thing by institutional investors and people who trade stocks for a living. By contrast, lack of liquidity is the reason that Internet companies move up and down fairly violently on a daily basis.
The reason that some stock market newcomers think stock splits are indicators that the company is moving boldly is that recently, many companies that have announced splits have seen their stock prices soar immediately afterward. This initially happened with Internet-related companies like Amazo n.com, but it has gotten really out of hand lately, with companies like Qualc omm.
Stock splits are really market neutral events. If a stock is at 100 the day before the split, and it splits 2-for-1, it's value at the open should be 50. I say "should be" because a stock often does not open at exactly the same price as it closes, so if there is a 2-for-1 split, the stock should open at around half the price of the close the previous day.
This brings us to another fallacy in the article. It says that a stock split is a "financial maneuver that is a risky move". The stock that traded for 100 per share yesterday was not issued by the company yesterday -- it was issued at some time in the past. The trade at 100 that took place yesterday was between two participants in the stock market who (probably) had no relationship to the company.
So, when the stock opens at 50 on the next day, after splitting two for one, not only did the people who traded the stock not lose anything (since they automatically have 2x the number of shares), but the company did not lose anything since they did not own the stock that was traded yesterday. Of course, any stock that the company is holding on its balance sheet (generally called treasury shares) did not increase or decrease in value, since the number of shares doubled while the price was cut in half.
I could go on with this analysis all night, but let me jump to the end of the Daily Radar article. The author makes the statement:
All I can say about this is that he must mean that the company is building its entire video game console product line around PlayStation2. Sony does a lot more than produce game consoles. In addition to its video game console business, it owns 11 different recording labels, a TV and movie production business which produces such insignificant products as the TV series Dawson's Creek, and Sony Electronics which makes everything from chips to Jumbotrons.
That's why the company is worth over $110 billion, and that's just a few reasons why this article is so humorous to people who enjoy analyzing businesses and buying small pieces of them.
--
Dave Aiello
-- Dave Aiello
Roblimo, if I understand what you're saying, you understood that this piece was stupid and wrong when you posted it, but you posted it anyway, possibly in the hope of stirring up controversy?
It seems to me that Slashdot quite frequently posts articles with a controversy-inducing spin. The Gnome Napster article was one such case where I was involved. The hydrino one was another. "Crank or earth-shattering science?" How about just another scam artist who is good at exploiting people's desire to believe.
I've noticed that wrong and stupid posts often get a lot more response than well-written, balanced ones. In the former case, people have a great urge to write in and correct the original post. Some of these corrections are sensible, but by Sturgeon's Law, most are themselves pretty bogus. Presto! Instant controversy. After a well written article, people tend to be content.
So I think there is a danger that interesting and important stories are getting lost in the noise. I like the volume and rough-and-tumble nature of slashdot, but I for one would prefer a forum in which accuracy and footwork counted for something.
ObOnTopic: anyone know the status of the Linux port to the PlayStation II?
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