Consumer electronics behemoth Sony Corporation reported quarterly earnings this morning in Japan. While sales of microchips used in digital cameras and earnings at Sony Ericsson (a joint venture with Telefon Ericsson of Sweden) bolstered the company's bottom line, the game division reported substantially reduced sales of PlayStation 2 hardware as well as an operating loss for the quarter.

　　Sony said today that its overall profit totaled 23.3 billion yen ($210 million) for the quarter, up from the 1.1 billion yen ($9.8 million) it reported for the same quarter a year ago. According to the Wall Street Journal, Sony indicated that "profits for the latest quarter were better than it had expected but maintained its forecast for the full year, saying it wished to be cautious about the future."

　　However, in the games sector, sales fell 15.9 percent to 105.4 billion yen ($943 million). Additionally, the division posted an operating loss of 2.9 billion yen ($26 million). Software sales increased but not by enough to offset the drop in hardware sales.

　　Unit sales of the PlayStation 2 tallied just 710,000 during the April-June quarter. That number is nearly 2 million units less than the company shipped during the same quarter a year ago.

　　Industry analyst PJ McNealy of American Technology Research recounted in his morning memo that Sony executives informed him that the low ship-in numbers were the result of strategic planning, which anticipated the most recent price reduction of the console. "Channel inventory was ramped up in the March quarter in anticipation of the price cut," McNealy said he was told, "so while the production number is low, it should not be alarming."

　　An additional data point gleaned from McNealy's memo is that Sony is maintaining that it will reach its goal of shipping 14 million PlayStation 2 units and 1 million original PlayStation units during the full fiscal year. McNealy's memo also mentioned that Sony has completed moving production of the PS2 console to third-party partners. Sony itself reportedly confirmed that PS2 production is now taking place entirely in China.

　　Additionally, McNealy said, "We believe that SNE is preparing now for the production of its next-generation of products, from the Sony PlayStation Portable to the next-generation PlayStation console and other consumer electronics devices that will be based on its cell processor."

　　Suggesting such a ramp-up was one of the reasons the game division earnings had slumped, Katsumi Ihara, group chief financial officer for Sony, reportedly said at a Tokyo news conference. "For the PSP and the next-generation entertainment system we continue to have a high level of investment which is bringing down profit."

　　Sony's net sales for the quarter were flat at 1.6 trillion yen ($14.8 billion), up just 0.5 percent from the previous year, and operating income was 9.8 billion yen ($87.7 million), down from 16.7 billion yen ($149 million) a year earlier.