TOKYO — Sega Corp. said Wednesday 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 58.3 billion yen ($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 70 billion yen ($601 million), Sega Chief Operating Officer Hideki Sato said.
Sega would not say what the prices on the machines would be, although they said the prices may vary by region, depending on the markets. But Sega promised to continue to provide repairs and parts to Dreamcast owners.
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 acknowledged the video-game machine business was difficult because the manufacturer had to offer costly, sophisticated machines at affordable prices, counting on revenue from software sales.
It said it was unable to boost sales during the key Christmas season in the United States. The disappointment came despite slashed cuts in Dreamcast prices.
In the United States, Dreamcast consoles were marked down to $149 from $199 last fall, and rebates were offered to spur sales. In Japan, the machines were sold for 29,800 yen ($256) at launch in 1998 but were marked down later to 19,900 yen ($170).
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.
"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.
Besides revising its group forecast for the fiscal year ending in March to 58.3 billion yen from the loss of 23.6 billion yen ($203 million) it gave last November, Sega reduced its revenue forecast to 260 billion yen ($2.2 billion) from the previous projection of 320 billion yen ($2.7 billion).
Sega said it was setting up a special team headed by Tetsu Kayama, who was named co-chief operating officer Wednesday, 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 85 billion yen ($730 million) of his own funds to help bail out the company.
Sega officials said Okawa's decision showed his determination to protect shareholders as well as his passion for the company. Sega was also confident it would be able to get financing from banks, they 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.