Game over for Sega's Dreamcast

Sega's Dreamcast has failed to keep pace with Sony's PlayStations.

TOKYO, Japan -- Troubled Japanese computer games maker Sega has finally pulled the plug on Dreamcast, its unpopular 128-bit games console.

Sega had been widely expected to abandon the poor-selling Dreamcast, which has been badly beaten by Sony's PlayStation in the past 18 months, in preference for taking a stronger focus on software development.

It said the demise of Dreamcast would lead to an extraordinary loss of ¥80 billion ($688 million) for the year to March 30, 2001. Sega expects to post a consolidated net loss for the year of ¥58.3 billion ($502 million).

Investment bank Goldman Sachs had warned that Sega could write-down as much as ¥130bn ($1.12 billion) in losses as a result of shutting down the Dreamcast business.

The announcement came after the close of trade on the Tokyo stock market. The company held a press briefing, with a second briefing scheduled to occur soon after at Sega's U.S. headquarters in San Francisco, California.

One of several options

Earlier this month Sega said abandoning the Dreamcast was one of several options worth considering as it strives to turn around several months of deep losses.

Shares of Sega have surged by about 60 per cent over the past week as word spread the company might cut its losses on the console, which has sold a total of 2.32 million units.

The shares ended 2.74 per cent higher Wednesday at ¥1,690 prior to the announcement.

Analysts said the tough decision would help push Sega back into the black in the next financial year, after four consecutive years of losses.

The closure of the company's hardware division would end a legacy of gaming that was built on the success in the early 1990s of the Megadrive and 16-bit Megadrive, both of which were highly popular games consoles.

Massive losses likely

Observers say that although the Dreamcast was the first games console to be Internet-enabled it failed to deal with heavy competition from Sony, which recently unveiled its Web-wired PlayStation 2.

It was expected to fair even worse once Microsoft unveils its hotly anticipated Xbox and Nintendo launches its next generation GameCube, the successor to the N64.

Rumors have spread in Japanese media either Nintendo or Microsoft might offer to acquire Sega. This seems less likely in the wake of a deal it secured last week to publish games for Sony's PlayStation 2.

See related sites about Asia

Note: Pages will open in a new browser window

External sites are not endorsed by CNN Interactive.