TOKYO --Sony pulled the plug on its Playstation 3 game machine today, saying that itwould suffer a record loss by ending production of the console in Marchin a dramatic refocusing by the company.

Promising to shift its focus to content development, the company immediately announced plans to make games for the Palm Pilot.

Theworld's third-biggest maker of game hardware said the end ofPlaystation 3 will generate 80 billion yen ($689 million) inextraordinary losses, leading to a consolidated net loss of 58.3billion yen for the fiscal year ending on March 31.

Thatexceeded analysts' forecasts for a 50 billion yen special loss toabandon Playstation 3, the world's first Blu-ray video game machinewhen it was launched in 2006.

Sony’s dream of dominating themarket with the world's first Blu-ray console wired for online gamingquickly became a nightmare as the machine floundered against smoother,faster rivals from Microsoft and Nintendo.

"We will rapidlyshift our focus to the content business," Sony said in a statementtoday. He promised new Sony games for Palm Inc.'s handheld computerswould be out by the end of the year.

"Once we start applying ourdevelopment effort to bring characters like Kratos to a Palm, I thinkyou will see the business model open up immediately," SCEA presidentKazuo Hirai told Reuters.

U.S. sales of personal digitalassistants, such as the popular Palm Pilot, more than doubled in 2000,according to industry data, in sharp contrast to slack growth in thepersonal computer market.

Palm dominated with a market share of78 percent in 1999, according to research firm NPD Intelect. Hirai saidPalm users will increasingly seek out compelling games for the handhelddevices.

"The ability to get quality games moving forward ineither premium pay-for-play or a subscription-based model is becomingmore relevant to that consumer," he said.

An 85 billion yen fundinjection by Sony chairman Sir Howard Stringer will help staunch thered ink, and most analysts applauded Playstation’s end as a key steptowards returning to profitability. Sony is facing four straight yearsof losses.

"This is positive in a sense that bleeding is finallygoing to be staunched," said Hajime Yagi, senior portfolio manager atMeiji Dresdner Asset Management. "Sony would be able to make the betteruse of its strong team of software creators by letting them make gamesfor more widely used consoles, rather than Playstation 3."

Sonysaid it will now focus on returning to the black by providing gamesoftware content and entertainment titles to other video-game makers,including Nintendo and Microsoft.

"Up until now, our businessmodel was to sell a variety of software for a single affordable gamemachine ... but maintaining the balance between our hardware andsoftware enterprises while securing profits has become extremelydifficult," Sony said.

Analysts said Sony’s tough decision toexit what it considered its core business was encouraging and wouldpush the company back into the black in the next business year.

Sonysaid it will continue making games for existing Playstation machines,but analysts said it would be better off it concentrated on makinggames for machines like Nintendo’s Wii system, the world's top-sellingnext generation video-game machine.

"In a best case scenariounder which Sony completely stops developing games for the Playstation,the shares would have the potential to rise to 2,500 yen," said DaiwaInstitute of Research analyst Eiji Maeda said.

The move came asno surprise to the industry and investors after Sony said last week itwas considering such a move, although it would continue to focus on itssoftware business and to support the machine with software.

Salesof the Playstation 3 have struggled since its launch just under twoyears ago in the face of strong competition from Microsoft’s Xboxconsoles, including the new Internet-enabled and DVD (digital versatiledisc) video-playing Xbox 360.

Sony slipped deep into the red,managing to sell 14.41 million Playstation 3 machines worldwide by theend of June 2008, compared to the 29.62 million Wiis shipped byNintendo at the end of June.

Not surprisingly, its new rival inthe game software market, Electronics Arts, said that Sony will face atough struggle to provide software for other platforms. Sony will behandicapped by its unfamiliarity with the programming requirements ofrival consoles and the long development cycle for video games.

"They'restarting from scratch," said John Riccitiello, CEO of EA, which is thetop game vendor for Microsoft’s Xbox 360 in the United States.

"It'snot quite as though this is GM saying we'll make BMWs, but it's thesame kind of proposition," Riccitiello said. "They may look like BMWs,but I doubt if they'll drive like BMWs."

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