Japan's Nihon Keizai Shimbun reported Tuesday that Sega will stop production of the Dreamcast game console by the end of March to focus on developing and marketing game software for other companies' devices.
A Sega representative in San Francisco denied the report, saying plans for the device are "huge and long term."
"There is no public comment that would endorse that story," Sega spokesman Charles Bellfield said. In October, Sega executives in Japan said they were restructuring the company to focus more on networked entertainment, but indicated they would continue developing Dreamcast.
Another Japanese newspaper reported this week that Sega is looking to develop games for rival consoles, including Sony's PlayStation 2 and Microsoft's upcoming Xbox.
"We have no acknowledged plans in terms of those platforms," Bellfield added. Sega has said it will develop games and content for set-top boxes, cell phones and handheld devices.
Bellfield said Sega is set to announce enhancements for Dreamcast next week.
"Dreamcast is very much the core of our business going forward," he said.
However, one analyst predicted that Sega's exit from the console business is definitely coming. Following an initial rush in 1999 after its introduction in the United States, sales of the Dreamcast petered off. By getting out of the console business, Sega could cut its costs dramatically.
Brian O'Rourke, senior analyst at Cahners In-Stat Group, said it's more a question of when rather than if Sega leaves the hardware business. As the No. 3 console, he said, Dreamcast has little chance of surviving Microsoft's entry into the market.
"It's questionable whether they have the resources to develop a next-generation console," O'Rourke said, adding that in recent conversations, Sega executives have emphasized plans for software and online gaming through the SegaNet service.
"There's a question as to whether they really think online gaming is the future or whether they really can't afford to stay in the hardware business, but that's where they're heading," he said. "I don't know if they can make money on the online service. It's something that's never been tried by a games manufacturer."
Gartner analyst P.J. McNealy said he wouldn't be surprised if Sega stops making the Dreamcast.
"If they are getting out of the console business, it?s because consoles lose money," McNealy said.
Sega was the subject of speculation in November when The New York Times reported that Nintendo was in talks to buy Sega for $2 billion. Executives at both companies denied that report.
If Sega does decide to exit the hardware business, it would not be the first. Game maker 3DO launched its own machine in October 1993, but the $700 price tag and a poor game selection hurt sales. However, after the company halted production, it successfully transitioned to a software-only company.
In the wake of this week's press reports, Sega issued a statement Tuesday that it "globally reaffirms its commitment to Dreamcast" and said it has more than 100 games coming out worldwide for the console in the next year.
"It is not Sega's policy to comment on rumors and the company has not made any statement regarding ceasing manufacturing of Dreamcast or development for other videogame platforms," the company said in a statement.
News.com's David Becker and staff writers Robert Lemos and Richard Shim contributed to this report.