Sony could post its biggest quarterly loss in four years because of lagging PlayStation 3 sales and high launch costs, according to a report today on

“The extent of the recovery in the game business will be the main theme this fiscal year,” said Naoki Fujiwara of Tokyo’s Shinkin Asset Management.

A median estimate of 11 analysts surveyed indicates the fiscal fourth quarter net loss at Tokyo-based Sony may have widened to 75.8 billion yen ($630 million) from 66.5 billion yen a year ago. The analysts suggested that sales for the quarter were up around 9.5 percent to more than 2 trillion yen.

Sony’s fiscal quarter ended March 31 and the company will announce its results tomorrow.

Five of the 11 analysts polled said that the games division may post a quarterly loss of 121 billion yen “and a record 245 billion yen deficit for the fiscal year.” The games division is Sony’s second largest revenue-wise after the consumer electronics division, which creates the successful Bravia televisions.

According to NPD Group, the PS3 sold 501,000 units from January to March this year in the US, while the Wii sold over 1 million and Xbox 360 sold 721,000.

Merrill Lynch Japan Securities analyst Hitoshi Kuriyama, who issues a “buy” rating for Sony, said, “The 5 percent margin target is reachable if there is no price cut in the PS3. But I'm expecting a 20 percent price cut this fiscal year, and if that happens, the margin will not reach 5 percent.''

Sony has posted a 68% fall in operating profits for the financial year and a major operating loss for its fiscal Q4 primarily due to large losses in i

Sony announced operating profit of 71.75 billion yen ($596.8 million) for the year ended March 31, down from 226.42 billion yen ($1.88 billion) a year earlier.

The poor financial results stem mainly from the huge costs associated with the launch of the PlayStation 3, and specifically the company's decision to sell the console at a large loss per unit. According to Sony's annual report, "In the Game segment, there was a significant operating loss as a result of the sale of PS3 at strategic price points lower than its production cost during the introductory period." Sales of the console have not been overwhelming either - it has been outsold by Nintendo’s Wii by two to one since its release in November 2006.

"It was not an ideal launch. Our focus is to strengthen our software lineup this year," said Sony senior VP Takao Yuhara at a press conference in Tokyo, as reported by Reuters.

For the quarter ended March 31, the company posted an operating loss of 113.4 billion yen, surpassing the 94.5 billion yen loss expected by analysts polled by Reuters.

Sales were up 10.5 percent despite losses incurred by the PS3 launch, rising to 8.3 trillion yen for the fiscal year, thanks in part to solid performance from Sony Ericsson mobile phones.

However, the Japan-based company forecast impressive figures for the current financial year ending March 2008. Sony predicted an operating profit of 440 billion yen ($3.66 billion). It aims to achieve this largely by cutting the production costs of the PS3 and advancing its LCD television operations.

Tomomi Yamashita of Shinkin Asset Management elaborated, "Investors think highly of Sony's efforts to turn around its struggling electronics business. Now, its game business is underperforming, and whether it can fix that too will be closely watched."