Sony's games division losses will be worse than expected and could exceed $2bn for the fiscal year ending in March, vnunet.com can reveal. 

Executives told reporters and analysts in Tokyo today that they blamed a shortfall in sales of the costly PlayStation 3 video games console and the PlayStation Portable (PSP).

Sony's net profit fell more than five per cent to $1.3bn in the last three months of 2006. The games division suffered an operating loss of $455m during the quarter, a fall of almost $1bn from the previous quarter, according to Sony.

"This deterioration was primarily the result of the loss arising from the sale of the PS3 at strategic price points, as well as other charges associated with preparation for the launch of the PS3 platform," the company announced.

"In addition, operating income from the PS2 and PSP businesses fell due to sales declines."

Sony has been shocked by the strong sales of Nintendo's much cheaper Wii console, according to analysts, and has had to fight the entrenched strength of Microsoft's Xbox 360, which was launched more than a year ago and now has a wide range of games. 

Sony's predicted loss on the first six months of PS3 sales now exceeds the $1.3bn Microsoft is estimated to have lost on Xbox 360 sales over the same period of that console's life-cycle.

Analysts have suggested that Sony will be able to cut PS3 manufacturing costs and retail prices later this year when it revamps the console with smaller ver sions of the Cell CPU and RSX graphics chip.

"How and when the company intends to address the problem of weak demand for PS3 hardware remains unclear. In our view, making the PS3 profitable will not be an easy task," said Eiichi Katayama of Nomura Securities in a briefing to clients. 

Sony executives are now saying that the games division loss for the financial year ending in March will exceed earlier predictions of $1.65bn, and might go as high as $2.05bn, according to sources present at a Sony investor briefing in Tokyo today.

Nomura's analysts have stated that they expect the results to be even worse.

Despite the bad news from Sony's games division, better than expected results from its consumer electronics products had helped offset the loss, Katayama said. Sony highlighted TVs as a strong seller during the Christmas season.

Although media attention has focused on the high-profile PS3, older games products are also giving cause for concern at Sony.

"We think that a critical stage is approaching for the PSP, which in our view occupies an ambiguous market position as a game console and a multi-purpose audiovisual machine," said Katayama.