Sony Still Can’t Build PS5’s Fast Enough: Chip Shortage or Too Expensive to Make?

The PS5 is $500, and the PS5 Digital Edition is $400. And while that is a lot of money, it’s not enough to cover what it costs to produce the system. Now, the PS5:DE does drag down the average sales price of the PS5 overall. So that “strategic price point” is probably somewhere between $460 and $490. So the PS5 costs more than that to produce.

Millions of stuck-at-home consumers continue to fuel an unparalleled boom in home entertainment nearly a year into the pandy, pushing Sony to up its profit guidance by more than one-third just a few months after its last forecast. Shares in the company traded 1.6% higher in Tokyo, as the electronics and entertainment conglomerate also revealed the impact the global semiconductor shortage was having on manufacturing.

Looking back at the beginning of the pandy until now, the windfall of revenue to work-from-home-economy companies like Sony has been glaring. Consumers confined to their homes amid widespread lockdown orders have flocked to the company’s products across consumer electronics and entertainment. Sony unveiled the latest version of its popular gaming console, the PlayStation5, in November 2020. It was broadly met with critical acclaim, and is well-positioned against its rival, the Xbox Series X from software titan Microsoft.

Sony is also the parent company of major movie production group Sony Pictures and the world’s second-largest record company, Sony Music. What’s more, the company is the leading manufacturer of image sensors and a major name in televisions. Reporting results for the final three months of 2020, Sony raised its operating income guidance for the full year ending March 31 by more than one-third. The company said it now predicts to make ¥940 billion ($8.95 billion), after issuing guidance of ¥700 billion in October 2020.

Taiwan Semiconductor Manufacturing Co. (TSMC) is experiencing huge demand for its fabrication facilities that produce the system-on-a-chip (SOC) for the PS5. TSMC also makes the chips for the Xbox Series X/S, Nintendo Switch, iPhone, M1 Mac, and AMD’s CPUs and GPUs.

Revenues for Q3 2020 jumped 9% from the same period in the year prior, to ¥2.7 trillion, with operating income soaring 20% to ¥359.2 billion. The upswing in revenue was driven by a yuge demand increase in home entertainment like video games, movies, and music. Sony said that PlayStation playing time in December was around 30% higher than in the same month in 2019. CEO Hiroki Totoki said that deliveries of the new PS5 console this fiscal year are on track to outperform the levels reached by its predecessor, the PS4, by 7.6 million units. 

Despite that, Totoki also said that the electronics behemoth was facing manufacturing constraints due to the global semiconductor shortage, and will battle to meet consumer demand. The PlayStation5 chips are made by Taiwan Semiconductor Manufacturing [$TSM]. “The level of demand by customers is so high for PS5,” Totoki said. “We have to look at the global shortage of semiconductors, or we try to increase our capacity. We face difficulties because of this global situation.”

As the global semiconductor shortage continues, prudent investors will be keeping a close eye on how Sony will deliver the popular new PS5. That console quickly sold out online after it was launched, and it looks like consumers may have even more of a wait ahead. Whether the chip shortage has a real impact on the stock, or will just push revenues into the next fiscal year, remains to be seen.

$SNE YTD

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