Sega Enterprises Ltd warned on Monday of steep losses this business year from poor Japan sales of its Dreamcast game machine, casting doubt over its chances of survival as home video games enter the Internet age.

The news came even before a full-blown game machine war kicks off on March 4 with the launch of rival Sony Corp's PlayStation2, successor to the world's most popular game system with 70 million units sold in the past five years.

Sega's latest woes added credence to expectations that PlayStation2, with its capacity to play digital video discs (DVDs) and potentially tap the Internet, will cement Sony's number-one position in the industry.

Late last year, Sony, armed with a solid software lineup, held a 67 percent share in the world game market, followed by Nintendo Co with 29 percent and Sega with three percent.

``Judging from its weak sales at home, Sega is still facing hard times. Its future course will depend on whether and how it can win over users with Internet-based products,'' said Kazuko Fushimi, an analyst at ratings agency Japan Rating and Investment Information Inc.

Sega Slashes Dreamcast Sales Estimate

Sega is relying on the low price of its 128-bit Dreamcast game console, which is also Internet-capable, to bolster its market share. Since debuting in November 1998, shipments of the Dreamcast, priced at 19,900 yen ($180), have topped 4.4 million.

But the road has been a bumpy one, with slumping domestic sales already forcing the gamemaker to slash its sales estimate for the second half of the business year to March 31.

Despite strong European and U.S. sales, where Internet use is greater and the Dreamcast's online capabilities give it an edge, Sega said domestic sales of both Dreamcast hardware and software would fall far short of initial targets.

The result, it said, will be a hefty consolidated net loss of an estimated 44.9 billion yen for 1999/00, more than double its prior forecast of a 19.8 billion yen loss.

This will mark a third consecutive year in the red for Sega, which is also burdened with losses on its video game centers.

Sega now predicts domestic sales of its Dreamcast console in the September-March half-year will total just 600,000 units, barely half its original estimate of 1.1 million units.

``The latest loss estimate was a bit larger than anticipated, although I personally wasn't surprised to hear the news,'' said Eiji Maeda, a senior analyst at Daiwa Institute of Research. ``Sega will find it hard to expand its domestic market share, but it still has some room for expansion overseas.''

Sega Troubles Weigh On Csk

The troubled game maker also said on Monday it will turn to its biggest shareholder for financial help.

Sega will raise 101.38 billion yen through an allotment of new shares to information services firm CSK Corp and CSK Chairman Isao Okawa, raising their combined shareholding in Sega to 37.5 percent from 21 percent.

Sega will use the funds to redeem 44.7 billion yen in convertible bonds due to mature in September and to finance capital investment to strengthen its network business.

Sega's woes also cast a shadow over CSK, which warned it would fall into the red in 1999/00 with an estimated 9.8 billion yen group net loss.

Daiwa's Maeda said the funds from CSK would help ease fears of a possible default on Sega's bonds. ``One of the top concerns about Sega shares is the risk of default,'' he said.

($1-110 Yen)