Sony says semiconductor shortage makes increased PS5 production difficult

Sony shipped 4.5 million PlayStation 5 consoles worldwide through the end of 2020, the company revealed in an earnings report Wednesday. The number is broadly comparable to the 4.5 million PS4 consoles shipped in that system's 2013 holiday launch quarter. But potential PS5 customers shouldn't expect the rate of production to increase, Sony said, despite widespread retail sellouts that have led to substantial secondhand markups.

"It is difficult for us to increase production of the PS5 amid the shortage of semiconductors and other components," Sony CFO Hiroki Totoki said during a briefing accompanying the results. "We have not been able to fully meet the high level of demand from customers [but] we continue to do everything in our power to ship as many units as possible to customers who are waiting for a PS5."

Overall, Sony's Game and Network Services division saw its holiday quarter profits increase nearly 50 percent year over year. The company now forecasts the best fiscal year performance for the gaming division in company history, thanks in large part to an increase in PlayStation Plus subscriptions (which now sit at 47.4 million). A full 87 percent of PS5 owners so far subscribe to PlayStation Plus, Sony said, making those subscriptions key to the company's profits going forward.

“Strategic price points”

Despite the record-pace performance, Sony said its gaming profits were hurt by a "loss resulting from strategic price points for PS5 hardware that were set lower than the manufacturing costs." That's not abnormal for new consoles, which often launch at a loss to help create a wider audience for software and services like PlayStation Plus and PlayStation Now.

But the PS5's specific "strategic" pricing might also reflect the game of console-pricing chicken Microsoft and Sony played throughout 2020. Both companies waited longer than normal to reveal their console pricing plans publicly, with Microsoft finally breaking the seal on September 9. When Sony announced the $499 PS5 a week later (alongside a $399 Digital Edition), the aggressive $299 pricing of the Xbox Series S may have played a role in Sony's decision to take a loss on a "strategic price point."

In any case, Sony may eventually start making a direct profit on PS5 hardware sales as internal component costs come down and internal redesigns streamline the manufacturing process. In today's earnings report, the company notes that it is now seeing "higher profit margins on PlayStation 4 hardware."

Digital killed the gaming disc star

Sony also revealed that nearly 63 percent of its "full game" sales for the 2020 calendar year came via digital downloads rather than games sold on discs at retail. That's a significant increase from digital sales' 43 percent share in Sony's 2018 fiscal year (ending March 2019) and the 55 percent share in fiscal year 2019 (ending March 2020). The increase mirrors a longstanding trend away from disc-based games around the industry, and it's a trend that may only accelerate now that roughly one-quarter of all PS5 systems don't even have a disc drive, based on early hardware allocations.

Sony's gaming division also apparently continues to benefit from the effects of the global pandemic, the company said. "Thanks to continued stay-at-home demand and the launch of the PS5, we have achieved a very high level of user engagement," the company said. "Total PlayStation user gameplay time in December was approximately 30% higher than the same month of the previous fiscal year."

Demand for the aging PlayStation 4 was down to just 1.4 million units for the holiday quarter, compared to a full 6 million a year ago. That console has now sold a total of 114.9 million units worldwide, ahead of the original PlayStation but still well short of the 155 million units shifted for the PS2.

Microsoft has not disclosed unit sales for the Xbox Series X/S but said in an earnings report last week that Xbox hardware revenue increased 86 percent year over year for the holiday quarter.