With PlayStation 4, Sony reboots its games business

February 21, 2013, 2:35 AM UTC

Andrew House, president and group CEO of Sony Computer Entertainment

FORTUNE — Sony Corp. unveiled its PlayStation 4 video game console Wednesday, introducing a machine with dramatically improved technical abilities, crisp graphics, and a slew of social networking features. The new console is a major bid by the company to regain momentum in the quickly changing, $78 billion global games industry.

Due for the 2013 holiday, the Playstation 4 will be powered by an x86 chipset, advanced graphic processing unit, 8 gigabytes of memory, and come with a built-in hard disk drive. Sony (SNE) described the system as being built on a “supercharged PC architecture,” making it relatively simple for developers to create games for computers running Microsoft (MSFT) Windows as well as the PS4. It will feature a motion-sensing wireless controller, the Dual Shock 4, that looks similar to the current version but features a touch-sensitive track pad. (See image below.)

The final design of the machine was not shown to the public, however. Sony did not announce whether it plans to launch the system first in Japan and later in the U.S., as it sometimes has in the past, or simultaneously around the world. It also did not disclose an estimated retail price for the video game system.

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“Today is a moment of truth for Sony,” said Andrew House, president and group CEO of Sony Computer Entertainment. “The stakes are high,” he added, perhaps nodding to Sony’s delicate financial position. The beleaguered Japanese electronics giant has been waiting for a turnaround to materialize for years. Outside of the PlayStation business, it has progressively lost ground in the race to create lust-worthy consumer electronics to the likes of Samsung and Apple (AAPL).

Earlier on Wednesday, Sony said it expects to post a $1.23 billion operating profit for the fiscal year ending March 31, 2013. But it also previously disclosed a third-quarter loss of $115 million, due to a significant decrease in hardware and software sales. Game hardware sales decreased 15.1% from the previous year’s third quarter. In January, Sony Corporation of America revealed plans to sell its 37-story headquarters in New York City, a move expected to generate some $770 million.

Sony’s announcement also comes as doubts about the future of traditional console gaming are mounting. Last month, Nintendo (NTDOY) — the first of the three major console makers to release next-generation hardware — slashed its sales outlook, reflecting disappointing holiday sales of its new Wii U console. The Sony competitor cut its projection to $7.39 billion for the fiscal year to March, a 17% drop;  just a few years ago, it was raking in record profits thanks to its hit, original Wii. Microsoft has yet to announce plans for a successor to its best-selling Xbox 360 console.

Sony’s new controller and motion sensor.

With the PlayStation 4, Sony appears to be coming to terms with major shifts in technology as well as the impact of mobile phones, tablets, and social networking on how gamers play. The console features cloud-based technology that can stream games to players’ homes instantly, much like Netflix (NFLX) and Amazon (AMZN) beam movies and TV shows. (Last year, Sony bought cloud provider Gaikai for $380 million.) “The living room is no longer the center of the ecosystem,” said Sony’s House, referring to the ability to connect to PS4 games via tablets, smartphones and the web.

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Additionally, PlayStation Vita owners will be able to use their handheld gaming device as a supplementary screen, including controlling games remotely or displaying tactical information. Sony said it would offer a motion-sensing camera system akin to Microsoft’s popular Kinect device. That will allow the machine to pick up the movements of a player. In one example, developer Media Molecule showed a video of users sculpting 3-D objects by waving a motion controller in the air.

Sony showed a number of game demos, some running in real-time on development hardware, including action-adventure title Knack and realistic driving simulator Drive Club. Developers from some of the biggest firms in gaming were a part of the presentation, including Capcom, Square Enix, Bungie, and Blizzard (ATVI). Blizzard announced that its PC-only blockbuster Diablo 3 would be available for the PS4 and PS3.