Sony on the Brink
In 2007 and sometimes in 2008, Sony would refer to sales of the PlayStation hardware family – grouping the PlayStation 3 together with the PlayStation 2 and PlayStation Portable (PSP) – to draw attention away from faltering sales of the nascent PlayStation 3.
Not even that artifice would have reduced the discomfort of Sony's paltry hardware sales in April, sales which reached a mere 415,000 systems across the three platforms.
While PlayStation 2 sales were bolstered significantly by a price drop to $100, the PSP and PS3 both looked extremely weak. Also PlayStation 2 software did not see a corresponding increase, and in fact software sales for the aging platform were down 47% from the same time last year, according to Wedbush Morgan's Mr. Pachter.
At 127,000 systems for the month (31,750 systems per week), the PlayStation 3 had its worst showing since October 2007, right before the introduction of the 40GB system at a lower $400 price.
Moreover, since Sony has made no moves on price in May, it is quite likely that when results for this month are reported in mid-June, the figures will be even lower.
To understand just how attractive the $400 model is relative to the $500 model, the average sale price for the PlayStation 3 hardware (supplied to us by the NPD Group) suggests that the cheaper model is outselling the more expensive one by a ratio of about 9-to-1.
Consequently, Sony faces a PS3 hardware price cut. Publishers and retailers alike have been asking for it, and Sony's Dille made what could be construed as
a veiled reference to a near-term price drop in a recent interview. (Such expectations, regrettably, could depress May sales even further.) The key questions about the PlayStation 3 price drop are “When?” and “How much?”. According to
Sony's latest financial results, it believes it can sell 13 million PlayStation 3 systems globally from April 2009 through March 2010. That's up from the 10 million systems it sold in the previous fiscal year, and the 30% increase in PS3 sales will happen in a tougher economic environment (with higher unemployment, at least in the United States if not globally, and reduced consumer spending). Yet we already know that United States PS3 sales will be significantly down for at least two months of this new fiscal year (April and May). Even if sales in May are equal to those of April, the PlayStation 3 would be down almost 50% for the first two months of Sony's current fiscal year.
For this reason – to make up for lost sales then increase them year-on-year in adverse economic conditions – we believe Sony will announce a $100 price cut at E3 2009. The longer Sony delays, and the smaller the cut, the harder it will be to make the fiscal year hardware sales target.
We note that others believe the cut could come later, and that it could be only $50. If recent reports are true and Sony still loses $40 on each $400 PS3 unit, a smaller price cut would certainly be gentler on Sony's bottom line.
