The battle for control of the video game market claimed its biggest victim yesterday when Sega announced that it will dump its loss-making Dreamcast console in March.
The Japanese firm, the world's third-biggest game hardware maker, said it would take an 80bn yen (£471m) hit to close its assembly lines and dispose of 2m unsold consoles.
But Sega said the short-term pain was necessary to shift its focus towards the company's more lucrative software operation.
"Maintaining the balance between our hardware and software enterprises while securing profits has become extremely difficult," the company said. "We will rapidly shift our focus to the content business."
Sega has already begun talks to design and sell games to its former rivals. According to Japanese reports, Sony will acquire four titles including Virtua Fighter 4 for use on its PlayStation 2 console.
By the end of the year, Nintendo is expected to purchase at least three games, including Sonic the Hedgehog, Sega's most famous character, for its Game Boy Advance hand-held console.
Sega is also in negotiations to supply content for two consoles due to reach the market later this year; Microsoft's XBox and Nintendo's GameCube.
The cost of setting the business reset button is expected to result in a record loss of ¥58.3bn for the year ending on March 31. This is despite an injection of ¥85bn from the pocket of Sega president Isao Okawa.
Ignoring the flood of red ink, investors and analysts welcomed the move, saying Sega could return to profitability as early as next year. The company's stock price has jumped 60% since rumours began circulating last week of Dreamcast's demise. Since its debut in late 1999 as the world's first 128-bit, internet compatible game console, the Dreamcast has turned into a nightmare for Sega.
Despite a costly marketing campaign and hefty discounting, sales of the console are well short of the levels needed to cover the costs of developing and producing such sophisticated technology, with total sales a mere 5.9m units.
According to the Daiwa Institute of Research, Sega loses £30 to £60 on every Dreamcast it sells. This pushed the company about ¥40bn into the red last year, its third successive annual loss.