BusinessWeek is reporting that Sony is set to take one heck of a bath on the launch of the PS3:

The results for Sony's game division during the current fiscal year will not be good however, as the company ramps up investments for the PlayStation 3, which launches worldwide this November. Sony expects the segment to hemorrhage 100 billion yen ($871.6 million) in operating losses during the business year as it prepares the PS3 for launch.

That's a pretty big loss, and one that would take a large number of games to fill back in. The context this arrives in is critical for Sony:

Sony Corp. today announced details from its fourth quarter and full-year fiscal results. For the quarter ended March 31, 2006 the company lost 66.53 billion yen (around $569 million) on 1.85 trillion yen in total revenue. During the same period one year ago Sony lost 56.5 billion yen on total revenue of 1.7 trillion yen. However, the wider loss was largely attributable to a difference in taxes paid compared with a year ago. Sony's operating loss was actually down a bit year-over-year on a slight increase in sales.

That looks pretty bad to me, but there is a silver lining for the game division:

Although Sony's Electronics segment posted a loss, its game division remained profitable for the year.

Which is why they are willing to take that huge bath on the PS3 launch - if things hold up for the PS3 in terms of game sales, they figure they can get to a profitable position down the road. Personally, I'd question the overall ROI on the launch as a whole, but hey - they aren't paying me to make those decisions. They only sold a little more than 2 million PS2 units last year, but that's mostly due to buzz over the PS3 (why buy the old when the new is coming?) - they were selling 6 million in the previous year.

I still think it's a huge hill of losses to make up - and the game division will face some serious questions if their sales projections don't hold up.