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SONY PS5 Supply to be Hit: A Holiday Season Boon for Rivals?

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As Sony Group Corporation (SONY - Free Report) observes the first anniversary of its PlayStation 5 (PS5) gaming console today, the celebrations are likely to be muted. Despite scripting a blockbuster market entry with products flying off shelves and selling 10 million units within July to become the fastest Sony console to reach the tally, it has since fallen behind its predecessor PS4 owing to the dearth of essential components. To add to the woes, management has reportedly reduced the PS5 production outlook for the current fiscal by 1 million to 15 million due to supply chain disruptions, severely denting its holiday season sale. This is likely to offer an opportunity to rival gaming consoles like Microsoft Corporation’s (MSFT - Free Report) Xbox Series X and Nintendo Co. Ltd.’s (NTDOY - Free Report) Switch to poach on prospective buyers or those sitting on the fence, although the global shortage of semiconductor chips is expected to affect their production schedule as well.

What Ails Sony?

Sony had previously targeted production of more than 16 million PS5 units for the fiscal ending Mar 31, 2022. However, the company has been saddled with various logistics issues and a shortage of vital components, making it hard to have a steady supply throughout the year. Moreover, uneven coronavirus vaccine rollouts across developing nations from where it procures the bulk of its raw materials have made the supplies highly unpredictable and irregular, affecting the regular production schedule. The manufacturing snag has dealt a blow to the Japan-based conglomerate as it aimed to capitalize on the uptick in pandemic-induced nesting activities — games, streaming video, and home fitness. This, in turn, has left the door ajar for its rivals to score big in the imminent holiday season, with their gaming consoles up and running.

Features Loaded

Not all is lost for Sony though, as it has loaded the product with updated graphics, a newly-redesigned controller, and a collection of exclusive games. With a powerful 8-core AMD Zen 2 processor, 10.3 teraflops of graphics power, gorgeous 4K visuals, and an immersive end-user experience, the PS5 promises one of the best performances witnessed in a gaming console. Moreover, PS5 loads games about 10 to 20 seconds faster than the PS4 Pro and can even read physical discs a few minutes faster, making it an ideal choice for tech-savvy gamers.

How are Rivals Faring?

Although Microsoft initially faced certain supply chain issues for its Xbox Series X, it is likely to have avoided the pitfalls for a steady supply of products during the holiday season. Moreover, Microsoft has several games up its sleeves for release to cash in on the frenzy, namely Halo Infinite, Forza Horizon 5, and Age of Empires 4 while Sony does not have any notable first-party games for the upcoming holiday release.

During first-quarter fiscal 2022, Microsoft’s gaming revenues increased 16% year over year, driven by higher engagement levels. Revenues from Xbox hardware surged 166%, driven by strong demand for new consoles. For second-quarter fiscal 2022, Microsoft expects gaming revenues to be up in the high single digits on solid demand for the next generation Xbox Series X and S gaming consoles.  

Nintendo is grappling with supply chain disruptions and global chip shortages, forcing it to trim its sales forecast for 2021 by 6% to 24 million units. Similar to Sony, it acknowledged that it would face a tough time meeting the surge in demand during the holiday season. Nintendo has particularly flourished during the pandemic with its social simulation game titled Animal Crossing: New Horizons, but a dearth of such blockbuster games in the current season is likely to hit sales.

Although Nintendo recently launched the Switch OLED model, which is arguably one of its best models produced so far, it is unlikely to translate into a huge success. Moreover, early data reveal that most buyers are likely upgraders rather than new customers, which reduces the incremental earning potential from software sales. 

Catch Up Game: Quick Fixes

In order to bridge the demand-supply gap, Sony is resorting to some unconventional quick fixes as it expediated PS5 shipments to the United Kingdom through three chartered flights out of South Korea. About 12 articulated lorries were required to ferry the gaming consoles from the airport’s cargo hub to the various U.K. distribution centers and retail stores to cater to the huge Christmas demand.

Will these short-term measures suffice? We leave that for the Gamers to decide.

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