Troubled Sega confirmed today that it was in talks to sell games software to its leading rivals, sending its stock rocketing on investors' belief that it will pull out of the console wars.
Sega declined to confirm a flurry of reports that said the loss-making creator of Sonic the Hedgehog would halt production of its Dreamcast games console by the end of March and refocus on software development. But investors marked Sega's share price up 15.8% on the expectation that it will soon retreat from the hardware market, which has much tighter profit margins than software.
Sales of the Dreamcast, which have failed to meet Sega's hopes, will continue until stocks are exhausted. The company will stop taking orders from the beginning of the new fiscal year on April 1, reports said.
The company will instead start supplying games for the consoles of its fierce rivals, Sony and Nintendo, including two titles for the new Game Boy Advance being developed by Nintendo. At least another five titles will be supplied to Sony's PlayStation2. A Sega spokesperson confirmed that talks were under way but declined to say where they might lead.
Seeking to staunch losses, Sega last November unveiled plans to reposition the Dreamcast as the hub for an online gaming network. Sega was hoping to cash in on the PlayStation2's present lack of a modem connection. But the costs involved in developing the Internet strategy forced it to cut its sales target and predict it would post an annual loss for the fourth year running.
The hype surrounding the PlayStation2 has seen Sony's next-generation console eclipse the Dreamcast, and the console wars are set to hot up with the development of Nintendo's new Gamecube and Microsoft's Xbox.
The stakes are huge. The world market for computer game consoles and software was worth over $10 billion last year, overtaking revenues in the movie business for the first time. But the development costs of bringing a new console to market are massive as well, with Sony rumoured to have spent $1 billion on the 'Emotion Engine' chip which powers the PlayStation2's graphics.
