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Sony says sayonara to father of PlayStation

Ken Kutaragi was a gaming innovator, but his company will make do without him as it struggles to compete with Nintendo's hot-selling Wii.

It appears the disappointing PlayStation 3 has claimed its first executive victim inside Sony.

Sony and PlayStation creator Ken Kutaragi made a joint statement Thursday saying Kutaragi would as chairman and group CEO of Sony Computer Entertainment as of the company's next shareholders meeting on June 19, and that he has "been considering this decision for some time."

"I am happy to graduate from Sony Computer Entertainment after introducing four platforms to the PlayStation family," Kutaragi said in a statement.

Kutaragi is one of the most celebrated figures in consumer electronics history, having shipped more than 200 million PlayStation and PlayStation 2 consoles, as well as the PlayStation Portable. Some analysts believe that had the PS3 been perceived as a hit or even a mild hit, there's a good chance he would be sticking around for the full 10-year lifecycle Sony gives its consoles.

But the PS3 is widely seen as a commercial flop, given its third-place position among next-generation video game consoles, trailing Microsoft's second-place Xbox 360 and the surprising leader, Nintendo's genre-busting Wii. The PS3 is even trailing sales of the venerable PlayStation 2 at this point.

The "PlayStation 3 has been a huge disappointment, No. 3 out of three in terms of console sales," said Rob Enderle, principal analyst at the Enderle Group. "It's been a huge embarrassment for the firm, and a huge hole that money has been pouring into."

Console sales in March
Number of next-generation video game consoles sold in March in the U.S.
Nintendo Wii 259,000
Xbox 360 199,000
PlayStation 3 130,000
Source: NPD Group

Enderle said despite Kutaragi's massive success with previous iterations of the PlayStation, he probably couldn't survive the very public drubbing the PS3 has gotten in the market so far.

"When you go from superstar to walking disaster, there are few executives that can survive that," Enderle said. "You're only as good as your last financial report, and while he was given some leeway (with the PS3) there were obviously some huge mistakes."

Enderle said the biggest of those mistakes--the pricey inclusion of the Blu-ray player in the PS3--may well have been forced on Kutaragi by others at Sony.

The Blu-ray player added hundreds of dollars to the console's cost, making it, at a top price of $599, far more expensive than the $399 top-end Xbox and $250 Wii--and also making it much later to market than planned.

"It really is Blu-ray that killed him," Enderle said. "As a result, the product was too late and expensive, and that did a huge amount of damage to their sales volume."

At the same time, Nintendo's Wii has stolen the video game industry's thunder, leading the next-generation console wars with 259,000 sales in March, according to The NPD Group, largely on the strength of its innovative . By comparison, the Xbox 360 sold 199,000 units in March, and the PS3 trailed far behind, with only 130,000 sales.

Yet for some, it may even be surprising that Kutaragi survived the Sony restructuring that saw the ascendance of CEO Howard Stringer. Kutaragi in many ways represented the "old" Sony. He was big on vision--he saw the PlayStation line as a vehicle that would allow Sony to take over electronic entertainment in the home--but the projects sometimes didn't live up to the vision.

Ken Kutaragi unveils the look
for the PS3 controller in May 2006.

The PlayStation 2 was instrumental in accelerating demand for DVD players and discs. The player, however, didn't become an all-encompassing media server. The long-anticipated console vs. PC war never materialized in the way many expected. People bought PlayStations, but continued to go to their PCs when they wanted to get on the Internet or send e-mail.

The PlayStations have also proven expensive to produce, largely because of elaborate, customized silicon. In 1999, the processor and the graphics chip inside the PS2 took up 239 and 279 square millimeters in surface area, respectively, which made them relatively large (and hence relatively expensive) chips for their time. Sony often spoke of how the processor inside the PS2, called the Emotion Engine, would be used in other computers.

The constant chip improvements defined by Moore's Law allowed Sony to drop the cost of its components. By 2004, the two chips were condensed into one that took up only 87 square millimeters, almost one-sixth the size of the prior chip. But neither the Emotion Engine nor Sony's graphics chip threatened Intel's or anyone else's chip markets. Computer makers did not pick it up.

Similarly, the Cell processor inside the PS3 is an elaborate, expensive piece of silicon that took several years to create. Although the chip--designed in collaboration between Sony, IBM and Toshiba--provides excellent performance in many areas, Sony remains the chief buyer. The so-called SIT trio has only lined up a few other computer makers to use it.

Related audio's Michael Kanellos
on Kutaragi's Sony departure.

Despite that, Kutaragi leaves Sony as a heralded software guru, and to some, his legacy at the company will outlive any perceived faults.

"Ken is probably the richest living Sony employee in history, and I know he's going to be a senior adviser to Sony," said Richard Doherty, president of the analyst firm Envisioneering. "Ken Kutaragi probably knows how software should define hardware better than any other person on Earth other than Steve Jobs."

Doherty, who said he was personal friends with Kutaragi, though he never did business with Sony, thinks it's too early to say Kutaragi is leaving because of the PS3's bad start.

"Having spent time with him without Sony PR people around, I know he's been waiting for years to play golf with his wife," said Doherty. He had "a lot more hits than misses. This is just a hiccup."

Doherty also said that despite the poor early performance, he still expects the PS3 to outsell the Xbox 360 by year's end.

But if that comes to pass, it will be too little too late, and, in retirement, Kutaragi may find himself forever blaming the Blu-ray player for his demise.

"At the end of the day, they didn't need that capacity," said Enderle. "And to hold up the entire (PS3) system to try to force through the Blu-ray technology (was a mistake). But it's a consistent Sony mistake. They made it with Betamax and the Minidisc. They have a knack for making these mistakes and doing this to themselves."

In the end, however, it doesn't matter that the Blu-ray player was forced on Kutaragi, Enderle said.

"It was his responsibility to make it happen and saying later that he didn't want to do this doesn't help," Enderle added. "It's a shame. He's a brilliant guy, and really is responsible for creating the console game industry as we know it today."

CNET's Michael Kanellos contributed to this report.