Sega slashes profit forecast: Video game group says strength of yen will hit earnings. Gail Counsell reports

SEGA ENTERPRISES yesterday slashed its profit expectations for this year, warning that earnings would be badly affected by the strength of the yen.

The Japanese video game group, which owns and operates amusement arcades as well as producing computer game hardware and software, is highly sensitive to currency movements. Exports contribute 87 per cent of game division sales, which in turn account for more than two-thirds of group revenues.

Sega said it had originally assumed an average exchange rate of Y110 to the dollar for the year to March 1994, but had since revised its forecast.

In the six months to end-September, the average exchange rate was Y107 to the dollar, producing pre-tax profits of Y28.6bn (pounds 166m) - about Y400m lower than they would have been had last year's exchange rates prevailed.

But Sega is anticipating an even more unfavourable exchange rate in the second half, of about Y105 to the dollar. As a result, the company expects pre-tax profits this year to total about Y57.5bn, compared with an earlier estimate of Y63.3bn.

As well as the strength of the yen, the company admitted for the first time that it has been affected by a sharp fall in European demand for its eight-bit computer game consoles, as buyers have plumped instead for more sophisticated 16-bit machines.

Nevertheless, Sega said sales of computer games have remained strong, especially in the US.

In the UK, Sonic 2, Sega's best-selling UK title, has sold about 1 million units since it was launched last Christmas, according to the group's British arm.

Sega claims to be catching up quickly on its bigger rival, Nintendo. A spokesman for the group said that while its market share of the US consumer equipment market was about equal to Nintendo's in terms of shipments, its market share in terms of sales was more than 60 per cent.

It is expecting to sell about 6 million 16-bit Genesis game machines in the US in the year to March. Sales of Game Gear models are estimated at 2.3 million units and those of its newest product, CD-ROM computer game machines, at 650,000 units.

But Sega has reduced its expectations for sales in Europe, where its products are generally more expensive than Nintendo's. It now expects sales of the Genesis, Game Gear and CD-ROM computer game machines to total 5.3 million units in Europe in the year to March 1994.

Moreover, while strong sales of computer games in the US will continue to underpin earnings for a while, a group spokesman said Sega believed that demand for 16-bit computer game equipment 'is nearing the peak even in the US'.

----------------------------------------------------------------- TOP TEN ----------------------------------------------------------------- 1 (1) Mortal Kombat 2 (2) Mario All Stars 3 (7) Sonic the Hedgehog 2 4 (6) Jurassic Park 5 (26) Streetfighter 2 Turbo 6 (9) Super Kick Off 7 (-) Streetfighter 2 Champ Ed 8 (8) Lemmings 9 (4) Jungle Strike 10 (3) Striker The chart shows the best-selling cartridge computer games in October. Previous month's rankings in brackets. ----------------------------------------------------------------- Source: Gallup -----------------------------------------------------------------

(Photograph omitted)

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