Sega Saturn surrenders to competition in U.S. Company pins hopes on its next console


TOKYO -- In a stunning retreat, Sega Enterprises Ltd., the company that gave wings to the high-flying video-game business with the success of its Sega Genesis console, announced yesterday that it was pulling its Sega Saturn console from the U.S. market in the face of stiff competition from Sony and Nintendo.

The company said it would write off $450 million to cover losses at its U.S. subsidiary, Sega of America Inc., and on investment securities and a software venture, as well as for the disposal of inventory.

Sega expects to post a consolidated net loss for the year ending March 31 of $254 million, and anticipates that sales will fall almost 21 percent, to $2.8 billion. Its stock sank 3.3 percent yesterday to close at 2,130 yen.

Sega's president, Shoichiro Irimajiri, said the company had decided to take drastic steps to wipe out inventories to better position itself for bringing out the next generation of video-game consoles, which it is developing with Microsoft Corp. He promised that although the company would no longer sell Saturn in the United States, it would continue sales in Japan and would sell and develop software for the console.

Moody's Investors Service, the credit rating service, said yesterday that it had placed Sega under review for a possible downgrade. It questioned Sega's "ability to maintain its competitive position overseas in the highly trendy business" of video games.

After the company sold some 20 million 16-bit Genesis consoles in the United States alone in the early 1990s, its 32-bit Saturn flopped. Introduced in 1995, only 2 million of the consoles sold in the United States, and 5 million in Japan.

Sony's Playstation and Nintendo's 64-bit console have each sold more than 6 million units in the United States alone, while Saturn accounted for barely 2 percent of the market, according to the NPD Group.

Sega made several missteps with Saturn. Although it was the first company out with a second-generation video-game console, Saturn initially cost a hefty $400. To be first out of the blocks with the next-generation machine, Sega introduced Saturn in the spring instead of the fall, when most video-game players are sold, and its distribution was limited to a few retailers.

The console was introduced with few games to accompany it. Sega did not start selling its popular "Sonic the Hedgehog" until 1996, almost a year after Saturn came to market. Independent software developers complained that it was difficult to produce games for the Saturn.

Pub Date: 3/14/98

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