I tend to disagree. I'd argue that it cost them more money to discontinue the console than to just slowly start releasing third party games for Nintendo/Sony/MS on the side.
Besides, Kogen actually is correct about Sega of America being the driving force behind the discontinuation:
http://www.sega-16.com/forum/showthr...l=1#post623309
http://www.gamasutra.com/view/featur...ast.php?page=7
Moore's Manifesto of the Future
In September 2000, well before the year's biggest sales months had taken place, Peter Moore and Charles Bellfield wrote a report called the "Manifesto of the Future," which they presented to all of Sega of Japanese executives and the studio heads in Japan, including creative heavyweights such as Yu Suzuki (AM2), Yuji Naka (Sonic Team), Rikiya Nakagawa (AM1/Wow Entertainment) and Toshihiro Nagoshi (AM4/Ausement Vision) among others.
"As you can imagine, what was happening was that we were very close to the business," said Moore. "The writing ultimately was on the wall regarding the challenges to sustain the hardware business in the face of the financial difficulties Sega had at the time and the impending launch of the PS2. So we went over there as responsible business people should do and presented what was going on in North America."
"I remember it like it was yesterday," said Bellfield. "We presented a strategy in September 2000 that said we were not viable as a hardware player in the States beyond Christmas 2000 and that we needed to get out of the hardware business. That meeting was the first time Japan had ever heard that we could not be successful against the power of Microsoft, who had not yet announced their intention to come into the space, but we knew they were."
"They were hearing from the one region, the US, that had been successful with the Dreamcast launch, that the future of the Dreamcast was not going to be rosy. North America was the one lifeline that they had left -- that maybe success in the US would allow them to bridge doing another hardware platform, or to extend the life of this platform, or allow it to be reinvented in Japan and Europe."
"When we told them that staying in the hardware business was not our advice, the next thing that happened was all of the heads of all the studios got up and walked out without saying a word. That, in the Japanese culture, is pretty rude. But they were shocked."
Moore's document stated that Sega was arguably one of the greatest software companies ever, and it should focus on its major strength: software."
I think Okawa later realized he had ruined his life's work when agreeing to Moore's Manifesto which is why he donated 700 million dollars to the company shortly before he died.