After Sony announced its earnings today, revealing over 5 percent decline in profits for Q3 and losses at its game division of around $440 million, Lazard Capital Markets analyst Colin Sebastian noted that it may be premature to discount a price drop for the PlayStation 3 this year.

Sebastian believes that Sony's Blu-ray and PS3 manufacturing capabilities are ramping up now and that the production process may be streamlined enough in 2007 still to allow for a lower MSRP.

"We note that planned shipments of more than one million PS3 units per month through March suggest that PS3/Blu-Ray production capacity has improved since late 2006. We believe it is too early to rule out a PS3 price cut for later this year, which will depend in large part on retail sell-through trends, the evolving competitive landscape, and Sony's willingness to endure further losses on PS3 hardware, offset by potential component cost savings (e.g., shift to 65 nanometer processor)," Sebastian said.

As for Sony's portable business, changes could be coming in that space as well, according to Sebastian. While holiday PSP sales were somewhat disappointing, Sebastian noted that Sony is maintaining PSP shipment guidance of nine million units for the year despite the slower-than-expected sales during Q3. In fact, Sony management expects PSP demand to continue to increase going into the next fiscal year, which Sebastian said "could result from a price reduction and/or enhancements to the platform." It's long been rumored that a "PSP 2.0" is in the works, possibly with some sort of hard drive or other features.

Looking at the industry as a whole, Sebastian expects the U.S. market for game software (including console, handheld and PC) to "reaccelerate" in 2007, growing 15 percent due to increasing blended software average selling prices and ramping next-generation console sales.