Sony really didn’t need this. At a time when its collection of businesses, from movies to sensors, are all declining, the Japanese conglomerate had one bright spot on the horizon: a new games console. Now the company, and its investors, will need to wait a little longer for that fresh high.
Sony has been forced to cut its own estimate for PlayStation 5 production by more than a quarter. Problems manufacturing a custom chip commissioned for the new console means the company is unlikely to hit an earlier target of around 15 million units this fiscal year.
An actual release date hadn’t been announced, but the PS5 is widely believed to be due on shelves before the end-of-year holiday season. Investor reaction to the news is understandable. Sony shares dropped 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 may ruin the buzz surrounding the new games machine just as consumers are stuck indoors due to Covid-19, and rival Nintendo’s Switch is going gangbusters. In reality, the hardware is only a small contributor to revenue, averaging less than 10% of sales each year. But a new device means renewed excitement that translates to a boost in games and subscriptions, driving a lot more revenue and earnings. Games are Sony’s largest income generator, and tend to account for a quarter of operating profit.
Seize the moment
Sony had the door left open to a successful holiday season. Microsoft earlier this month announced a scaled-down version of its Xbox (called Series S) alongside plans for its high-end unit, Series X. That could have pitted the companies against each other heading into Christmas. But Microsoft messed up on multiple fronts, including a lack of killer game titles.
Rather than chase the low end, or rush a product out to beat rivals, Sony has held firm on hardware specs in the belief that a new PlayStation is a generational product, not merely seasonal. The thinking is that if you can bring gamers in with enthusiasm at the start of the product cycle, you can hold their loyalty for many years and enjoy ongoing revenue.
Sony really needs to seize this moment. The global pandemic has spurred an uptick in nesting activities — games, streaming video, home fitness — and a wave like this doesn’t often come along. Missing it will hurt. What’s more, Sony is a conglomerate comprising numerous other businesses, most of them suffering and with no rebound in sight.
Sony made a savvy move by commissioning its own processor to run on this next-generation revenue driver, but risks like that can sometimes come undone. Instead of a smooth output of these new components, production yields are as low as 50% for the key system-on-a-chip. And since it’s a custom design, there’s no fallback option.
With luck, those problems will be resolved soon and the company will get back on track in time to churn out new consoles for Christmas. Yet even with a pandemic setting up the perfect conditions to release a new games console, fate has a way of reminding us that there’s no such thing as a sure bet. — By Tim Culpan, (c) 2020 Bloomberg LP
