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Sony really didn’t I need this. At a time when its collection of businesses, from film to sensors, is dwindling, the Japanese conglomerate had a bright spot on the horizon: a new game console. Now the company and its investors will have to wait a little longer to reach that new high.
Sony has been forced to cut its own estimate for PlayStation 5 production by more than a quarter. Trouble making a custom chip commissioned for the new console means the company is unlikely to hit a previous target of around 15 million units this fiscal year.
No actual release date had been announced, but the PS5 is believed to hit shelves before the end of the year holiday season. Investor reaction to the news is understandable. Sony shares fell as much as 3.5% in Tokyo on Tuesday, the most since May.
This development could mean not only a loss of hardware sales, but it may ruin the buzz surrounding the new gaming machine, just as consumers are getting stuck inside due to Covid-19, and the rival of Nintendo Switch. he is becoming crazy. In reality, hardware is only a small contributor to revenue, averaging less than 10% of sales each year. But a new device means a renewed excitement that translates into a boost in games and subscriptions, generating much more revenue and profit. Games are Sony’s biggest revenue generator and tend to account for a quarter of operating profit.
Enjoy the moment
Sony left the door open for a successful holiday season. Microsoft earlier this month announced a scaled-down version of its Xbox (called the S Series) along with plans for its high-end unit, Series X. That could have pitted the companies against each other heading into Christmas. But Microsoft got it wrong on several fronts, including the lack of killer game titles.
Rather than chasing the low-end or rushing a product to beat its rivals, Sony has stood firm on hardware specs in the belief that a new PlayStation is a generational product, not merely a seasonal one. The idea is that if you can engage gamers with enthusiasm at the beginning of the product cycle, you can maintain their loyalty for many years to come and enjoy continued income.
Sony really needs to seize this moment. The global pandemic has led to a spike in nesting activities (gaming, video streaming, home fitness) and a wave like this rarely appears. Losing it will hurt. What’s more, Sony is a conglomerate that includes many other companies, most of them suffering and with no rebound in sight.
Sony made a smart move by commissioning its own processor to run on this next-gen revenue generator, but risks like that can sometimes be undone. Instead of a uniform output of these new components, production yields are as low as 50% for the key system on a chip. And since it is a custom design, there is no backup option.
Hopefully those issues will be resolved soon and the company will get back on track in time to produce new consoles for Christmas. Yet even with a pandemic creating the perfect conditions to launch a new gaming console, fate has a way of reminding us that there is no such thing as safe bets. – By Tim Culpan, (c) 2020 Bloomberg LP
