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Sony Corporation (ADR): PS4 Could Face Supply Constraints

 February 22, 2013 02:19 PM

(By Mani) Sony Corporation (ADR) (NYSE: SNE) officially announced its next home console PlayStation 4 (PS4), whose sales could be affected as it may face supply constraints.

PS4, which is expected to hit the market during the holiday season, is likely to have strong demand, but tight inventory may impact its sales numbers.

These supply constraints on the next generation video gaming consoles are common, but for Sony, it could limit the installed base for at least six months, making it difficult to leverage an expected increase in development costs for the next generation games. Moreover, Sony has a history of supply constraints hurting PlayStation devices.

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"We currently estimate sales of about 1 million units a month for the first six months the device is on the market, which could be limited by supply constraints," Brean Capital analyst Todd Mitchell said in a note to clients.

In a related development, Taiwan-based supply chain participants for the PlayStation 4 (PS4), including Delta Electronics and Foxconn Technology, will begin shipments in the second quarter of 2013, while assembly undertakers Foxconn Electronics and Pegatron Technology will do so in the third quarter, according to Digitimes citing a report on Chinese-language Economic Daily News (EDN).

This suggests that Sony may launch PlayStation 4 before holidays. Interestingly, the company didn't show the device during the Feb.20 event, driving rumor mills that it didn't show the unit as the design may not be complete. If Sony wants to launch PS4 at the same time in U.S. and Japan, then it has to make the devices in spring.

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In addition, Sony is not alone in this field. It would face cut throat competition from Nintendo and Microsoft Corporation (NASDAQ:MSFT), whose rumored Xbox 720 is expected to be unveiled by the end of the first half of 2013.

If Sony faces supply shortage for PlayStation 4, then it could hurt the sales numbers as consumers have other options to quench their gaming thirst.

Barring the supply chain issues, Sony PS4 has some cool things too. The Japanese consumer electronics giant raised the bar on graphic quality and functionality for PS4, which features an advanced chip set as well as added functionality focused on social networking, cloud based gaming and motion sensing.

Sony officials also introduced a parade of in-house and third-party developers, including officials from Activision Blizzard, Inc. (NASDAQ:ATVI), to show off trailers and limited in-game footage.

"We believe the games, at least the trailers, look incrementally better at large, and for some games photo realistic. However, the presentation was only a tease of the console's capabilities with harder details expected at a later date, likely by E3 in June," Mitchell noted.

The PS4 will house a x86 processor with eight CPU cores, an enhanced graphics processing unit (GPU) and 8GB of memory (the PS3 has 512MB). It is more powerful than the PS3 and can render higher end graphics.

The company spent far more time describing added functionality, including allowing players to share game play with friends via a social network as well as further integration with its hand held Vita.

The company also detailed its redesigned controllers, showcasing a touchpad and a share button that allows a gamer to broadcast games among social networks and even call in a friend for help. The event featured integration of Gaikai, a cloud based gaming service Sony acquired last summer for about $380 million.

The PS4 will not be backwards compatible with PS3 discs. However, Gaikai will warehouse a library of old games that will be playable on the PS4.

"We believe Sony may set up a porting system tying PS3 titles to PlayStation Network IDs that could port to the new console," the analyst said.

One of the key surprises included Blizzard's return to the console - with Diablo III arriving on the PS3 and PS4.



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