Sega has suffered in the face of the intense competition form Sony and Nintendo which have both introduced powerful new games consoles, the Sony Playstation and the Nintendo 64.
The company also downgraded its profit forecasts for the year to March 1999 from ¥8bn to ¥6.2bn ($50m).
New launch
Sega is due to release its own new games console, Dreamcast, next month.
It is billed as the most powerful on the market and will provide Internet access.
However the launch of Dreamcast has already created problems for Sega.
It has had to pay out ¥1.3bn to settle a lawsuit from 3DFX, a US graphics company that was working on the new console before Sega controversially switched suppliers last year.
Sega also said its profits in the first half were hit by ¥3.3bn in unrealised losses on its stock holdings, as the Nikkei stock index has dived to near 13 year lows.
Sega's shares fell 8% on the Tokyo stock market.
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