Console Post of the Week
I think the big picture this week is price cuts.Sony may have enough 60GB units in warehouses to feed the U.S. until October (or longer), but it's completely infeasible to jack the price back up once those units run out.
Note that while I say it's infeasible, that doesn't mean it's impossible, because Sony has displayed a curious inability to think logically for well over a year. Even they, though, have to see the handwriting on the wall.
In this case, the handwriting on the wall is their recently released quarterly earnings report. The gaming division lost another $237 million dollars, which Sony's chief financial officer, Nobuyuki Oneda, said was better than they expected. Here's what he said in reference to PS3 sales:
"Actually, because the number of units sold was not as high as we hoped, the loss was better than our original expectation," he said.
How many PS3's does Sony say they sold in the last quarter? 710,000. That's a ledge number for Sony executives.
Sony also did something very interesting in their latest earnings report--they're now listing units sold for a quarter as opposed to units shipped.
Why did they do this? Well, because it gave them an opportunity for padding, I think. This analysis is going to be kind of a labyrinth (in a shitty, free-blog kind of way, mind you), but just stay with me, because there are some very, very interesting bits of information at the end.
Data points:
--they claim that they've sold 4.48 million PS3's worldwide (by the end of June--source here).
--they expect to sell 10.29 million units worldwide in the next three quarters (same as 4.48 source above).
--Sony shipped 5.5 million units by the end of their fiscal year in March 2007 (source here).
--they plan to ship 11 million PS3's this fiscal year (same source as above).
--the PS2 sold 2.7 million units in the fiscal quarter ending in June.
This isn't part of the analysis, but it's absolutely stunning that the last gen PS2 is outselling the PS3 by almost a 4-1 margin.
Let's look a that 4.48 million claim first. If they sold 710,000 units in the last quarter, that means they had to have sold 3.77 million units by the end of March.
Based on NPD numbers, the PS3 had sold 1.2 million units by the end of March in the U.S. In Japan (remember, Sony just cracked 1 million units there a few weeks ago), the number at the end of March was roughly 850,000 (maybe even less).
So to get to 3.77 million units, approximately 1,720,000 units had to be sold in the rest of the world. No problem, because the PS3 launched in Europe/Australia/New Zealand in March, right?
That's right--they did. And Sony trumpeted the news when sales for those territories reached one million units.
In June.
Here's your quote:
David Reeves, Sony Computer Entertainment Europe president and CEO, today confirmed that “Early last week we went through [a sell-through of] the one million mark on PS3. And we did that in nine and a half weeks.”
So what does that mean they'd sold in those territories by the end of March? Based on information here, I think 700,000 would be a decent (and possibly generous estimate).
That leaves them a million units short of what they're claiming to have sold.
Japan's numbers are relatively airtight. Sony themselves gave the numbers for the PAL territories, so they must be close. The U.S. has NPD numbers, and even if they're off, it's highly unlikely that they're off by more than 10-15%.
So who bought those million units? Canada? Don't think so.
Like I said, I think this was a one-time opportunity for Sony to "adjust" their numbers--the discrepancies are absolutely gigantic, so enormous that it's obvious.
Let's give them a half-million unit bonus and say they've really sold four million units. They'd shipped 5.5 million units at the end of March, and they're supposedly shipping 11 million units this year, so I have to think they shipped at least 2 million units in the June quarter.
That means that, even with generous estimates in Sony's favor, they have roughly 3.5 million consoles in inventory at retail worldwide.
They claim that they're going to sell 10.29 million units worldwide in the next nine months when they're selling 240,000 units a month right now.
Um, okay.
There are only two possibilities here: either Sony has one of the most massive misses in the history of the financial markets, or the price on the PS3 plummets over the next nine months.
Microsft believes that Sony is going to create a "low-end" with a 40GB hard drive, no integrated WiFi, no memory card reader, and no backward compatibility for $399. Selling by Black Friday (day after Thanksgiving in the U.S.). At least, they bet N'Gai Croal that it was going to happen.
This would not be an unreasonable strategy on Sony's part. But it needs to happen before Thanksgiving, or they'll miss a ton of shoppers who bought everything early.
Last Sony note. Hotshots 5 released in Japan last week and sold in the neighborhood of 200,000 units. It will be interesting to see if that drives PS3 sales up to the 35,000 range (or even higher), and if sales stay up there for more than a week.
Wait, one more. Jack Tretton gave an interview last week where he said that the PS3 was "surf and turf" (lobster and steak) and the Wii was a "lollipop."
Yes, and they've dropped 10 million lollipops on your lobster in nine months. Oh, and they don't have 3.5 million lobsters in the kitchen, either.
On to Microsoft.
Rumors of a 360 price cut to $349 on August are starting to appear credible. Scanned Circuit City and Toys R Us ads allegedly show the deal, and it's clear that Microsoft needs to take a pricing action here--the PS3 has "clearance pricing" on the 60GB units, and questions about reliability are still dogging Microsoft on a daily basis.
Here's the question, though: does this mean Microsoft is shipping the 65nm units now, and will we actually get any confirmation when this starts happening? There's just no way to tell, and if I was considering a 360 purchase now, there's no way in hell I'd want one of the "old" (aka "shitty") units.
There's no question, though, that Microsoft desperately needs a price cut. The 360 had very strong momentum last year at this time. This year, they've got an outstanding game lineup coming up, but they've been leaking air for months.
Peter Moore proved last week that not only Sony executives act like dickheads in interviews. Here's an excerpt from an interview with GameDaily Biz:
BIZ: It's a bit ironic, because when MS first got into the console business, critics laughed because MS is a software company at its core. It's not in the business of creating hardware. Now the company has discovered some faulty design in its 360 hardware, seemingly proving the critics right. What do you say to those critics?
PM: Those critics need to do their homework and look at some of the hardware product failures that this industry has seen in the past 30 years that maybe have not got as much publicity...
BIZ: You're saying that this is not an unprecedented failure for a video game console?
PM: Probably the size of it may be unprecedented, and certainly the financial implications, but if people say that previous consoles have all been perfect and not had failure rates, then they need to go get a history lesson.
That's great stuff. Thirty years? Seriously, is he so desperate that he's going back to 1977 to find a data point he can use? What, did the Atari 2600 or the Odyssey 2 have reliability issues?
Peter, we're not saying that other consoles were perfect and didn't have failure rates--we're just saying that the 360's failure rate is, oh, QUADRUPLE any other console in history.
At least.
Oh, and when people don't want to answer questions directly, one of the easiest ways to obfuscate is to misrepresent the question. Like you did.
Last note on Microsoft: Oblivion, with full language localization, released in Japan last week, and it will be interesting to see how many units it sells.
Lastly, here's a note on Nintendo. Skip Key noticed that Nintendo's earnings release included the projection that the Wii would sell 16,500,000 units in this fiscal year (which ends in March 2008). Backing out their first quarter sales of 3,430,000 units, that means they project selling 13,070,000 units in the next nine months.
Skip believes this indicates that a price cut for the Wii is coming. I don't agree--at least, I don't see it coming before early next year, at the soonest. I think it's more an indication that Nintendo believes that demand is basically still bottomless.
What it does mean, though, is that Nintendo is seriously ramping up production.
Finally (good grief, these console posts have gotten long), here is some additional information from Andrew Herron, who e-mailed me last week about the insane prices of consoles in Australia:
The Australian price of the Wii is A$400 (for the purposes of a true comparision with the price of the PS3, which is A$999. What's amusing is that with the weakening US dollar that now translates into US$353 for the Wii and US$883 for the PS3.
Remember, Sony is claiming that they're not cutting the price in the PAL territories. That's a staggering amount of money to spend on a console.
I believe the 360 Pro is A$599, in case you're wondering.
Andrew also mentioned that inventory was not the reason that retailer Harvey Norman hadn't been carrying the Wii (although they're in negotations now to do so). Take a look at this excerpt from an article over at Smarthouse (November 2006):
One of the hottest products in town the new Nintendo Wii will not be on sale at Harvey Norman Australia's biggest CE retailer after the Japanese games giant Nintendo pulled the plug on the mass retailer because they were asking for too much margin.
In Australia CE manufacturers are being asked to give Harvey Norman a floor margin of 17% on a product or service. On top of that they also want an additional margin of around 25% for meeting targets. In addition they also want money from vendors to advertise in their catalogues as well as up to $10,000 for an internal product training system.
What a difference ten million units make. I guess even Harvey Norman's finally figured it out.
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