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Electronics Manufacturing – M528

Market Prediction for the Sony PlayStation 3


Introduction

Sony have recently released its latest games console, the PlayStation 3 to European customers. However initial sales figures have been quoted as: "worse than in Sony’s worst nightmares" (Truta, 2007). This article will examine the current console market and other technology trends, and predict how successful the PS3 will be.

The PlayStation 3 is Sony's latest games console, replacing the highly successful PlayStation 2, which shipped over 100 million units (Cumulative Production Shipments, 2006). It incorporates the new Sony Toshiba IBM processor called 'Cell', which is basically a PowerPC master processor controlling seven other processors. It also has a built in Blu-Ray disk player, one of the two competing technologies for High Definition video (The other being HD-DVD). Internet connection is by way of wireless or Ethernet, with a free online gaming service. There is a built in hard drive for saving games and it has wireless controllers (About PlayStation 3, n. d.). The current UK price for the PS3 is arround £400 (Sony PlayStation 3, n. d.).

The PS3's Main Competition: The 360 and the Wii

The PS3's direct rival is the Microsoft Xbox 360. The 360 has similar features as the PS3: It has a PowerPC based processor, in a triple dual core set-up. The 360 does not come with a HD video device, although a HD-DVD drive is available as an optional extra. There is an Ethernet connection and an optional wireless connection for the Internet and the Xbox Live subscription service. The 360 can come with either wired or wireless controllers, depending on the version (Xbox, Which Console for You?, n. d.). The 360 currently sells for arround £260 (Xbox 360 Console, n. d.) depending on the options (not including the HD-DVD player, this is £130 (Xbox 360 HD DVD Player, n. d.)).

The main difference end users of these systems will notice is that the PS3 comes with a higher amount of things included, whereas the 360 offers them as extras or options. Once you buy the HD-DVD player the price between the two units is similar.

The PS3 also receives competition from Nintendo's Wii. This console seems to be aimed at a broader market than the 360 and the PS3, with a focus on family games. The Wii uses an innovative interface, which relies heavily on motion sensors to detect the users movement. The Wii has a PowerPC based processor, and is not as powerful as either the PS3 or the 360, but this is reflected in the price, with a recommended retail price in the UK of £180. (Due to short supply the actual selling price is around £260) (Nintendo Wii Console, n. d.). The Wii also has wireless built in and a free online gaming network, but does not play video (What is Wii, n. d.).

Current Sales Figures for These Consoles

Microsoft have shipped over 11 million Xbox 360's since its launch in November 2005 (Microsoft Corporation, 2007). Shipments in its first two quarters totaled 3.2 million units (1.5 million, 2005 Q4 (Gruener, 2006) and 1.7 million, 2006 Q1 (Cantrell, 2006)). The Wii has shipped nearly 6 million units since its release in November 2006 (Nintendo Co., Ltd., 2007) and the PS3 has sold 3.2 million (PlayStation 3 - Sales, n. d.)) (Un-cited reports claim 5.5 million have shipped, Sony have yet to offer clarification so we will use the lower figure), also released in November 2006.

So Nintendo has almost sold twice as many Wii as Sony has PS3s. But, PS3 sales have been almost identical to the Xbox 360's sales for the equivalent period. This suggests that the Sony system is not doing too bad, just that the Wii is selling extremely well, and this is not overly surprising since the PS3 is twice the price as the Wii.

It seems that the Wii will attract new customers to the games console market, however few long time gamers will find the Wii a replacement to a PS3 or 360, because that is not exactly what it is designed to do. These people will want to buy a PS3 or 360 in addition to their Wii. A good proportion of Wii customers are potentially PS3 customers that have decided to purchase the cheaper option and will wait for the PS3 price to drop. The perfect opportunity to do so would be the holiday season 2007, or 2008 when the price will likely drop. This could easily bring in half of the current Wii customers, or 3 million units, on top of the existing customers.

DVD Example
Current Console Market (From Text).

HDTV Take-up Will Boost Blu-Ray Sales

Putting a Blu-Ray player in the PS3 makes it more expensive than its rivals, however this move will potentially increase sales. Peter Moore from Microsoft said that the Xbox 360 team's view is that people don't want HD-DVD or Blu-Ray built in, it is better to have it as an add-on. But he does suggest that if Blu-Ray becomes the dominant format then the PS3 will have an advantage over the Xbox 360 (Hus, 2007, p14-19).

The HD video format dominance has by no means been settled yet, however it seems that Blu-Ray players have massively outsold HD-DVD players. February figures suggest 1 million Blu-Ray players and 200,000 HD-DVD players, including both PS3s and 360s with the HD-DVD add-on (Ault, Feb 2007, pg 29).

If, because of the dominance of Blu-Ray players, the Blu-Ray format finds dominance then people looking to buy a HD video player will be lead to the PS3. The PS3 is cheaper than current stand alone players, with the cheapest model in the UK, the Samsung BD-P1000, retailing for £445 (Samsung BD-P1000, n. d.). This will increase Sony's customer base in the future, giving the PS3 continuously strong sales.

Seasonal sales of HDTVs are likely to be high during the 2007 holiday season, and this will drive sales of Blu-Ray devices, namely the PS3. The 200,000 figure seen in the HD-DVD market can be expected to at least double this year as HD moves out of the early adoption stage and into the main-stream. This will add 500,000+ sales of the PS3 from people purely interested in the Blu-Ray playing ability.

Future Price Drops

Sony's Takao Yuhara has confirmed that there will be strategic price cuts for the PS3 (Schilling, Feb 2007). This will be achieved by out-sourcing the fabrication of the Cell processors (Cheung, 2007). Before releasing the PS3 to the European market, Sony re-designed the motherboard to reduce production costs of the unit (Sony to slash chip spending, 2007), but, according to Yuhara, this cost reduction has already been applied.

The Sony PlayStation 2 dropped in price almost each year, from $300 down to $130 (Thorsen, 2005), and the Xbox followed in a very similar way.

DVD Example
PS2 Price Drops (Thorsen, 2005).

The PS3 will follow a similar pattern, perhaps dropping to as low as £300 in 2008. This will continue to drive sales as the PS3 drops into peoples price range.

Conclusion

Sony's current sales standing is quite good. They have equalled the Xbox 360s initial sales. As a console, the PS3 will see a slightly better, or same year than the Xbox 360 this year, both selling about 5 million units. The PS3 will have a significantly better Christmas, as there is less competition from the Wii, with 6 million sales for the PS3 and 4 million for the Xbox 360. Add to that 4 million sales due to Blu-Ray and Wii owners, and by the end of Q1 2008 the PS3 will have almost caught up with the Xbox 360 in terms of sales.

DVD Example
2008 Q1 Prediction. PS3: 18 million units, Xbox 360: 20 million.

Beyond Q1 2008 the PS3 will beat Xbox 360 sales, but not as comfortably as with the original Xbox and PS2, where the PS2 sold 5 times as many units. The PS3 will sell around 20 million units per year, and end up with a 3:1 ratio with the Xbox 360, due to the years sales advantage the Xbox 360 had.






References

About PlayStation 3 (n. d.). Retrieved April 26, 2007, from http://www.us.playstation.com/PS3/About

Ault, S (February 26, 2007). CCity plugs in HD DVD. Video Business. Vol. 27 Issue 9, p1-29 Retrieved April 25, 2007, from http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=24394626&site=ehost-live

Cantrell, A (2006). Xbox marks the sore spot. Retrieved April 26, 2007, from CNN Money: http://money.cnn.com/2006/04/27/technology/microsoft_earnings/index.htm

Cheung, K (2007). Sony PlayStation 3 Price Cut. Retrieved April 26, 2007 from EDA Blog: http://edablog.com/2007/04/03/sony-ps3/

Cumulative Production Shipments of Hardware / PlayStation®2. (2006). Retrieved April 26, 2007, from Sony Corporate, Business Data: http://www.scei.co.jp/corporate/data/bizdataps2_e.html

Gruener, W (2006). Microsoft ships 1.5 million Xbox 360 units in Q4 Retrieved April 26, 2007, from TG Daily: http://www.tgdaily.com/content/view/24012/118/

Hus, D. (2007). Moore's Law. [Electronic version]. Electronic Gaming Monthly., Issue 214, p12-20. Retrieved April 25, 2007, from http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=24359789&site=ehost-live

Microsoft Corporation (2007) Quarterly Report. [Electronic Version] Retrieved April 26, 2007, from United Stated Securities and Exchange Commission: http://www.sec.gov/Archives/edgar/data/789019/000119312507091808/d10q.htm#toc35452_4

Nintendo Co., Ltd. (2007). Consolidated Financial Statements. [Electronic Version] Retrieved April 26, 2007, from Nintendo, Corporate: http://www.nintendo.com/corp/report/FY07FinancialResults.pdf

Nintendo Wii Console (n. d.). Retrieved April 26, 2007, from Amazon: http://www.amazon.co.uk/gp/offer-listing/B0007UATDG/ref=dp_olp_2/026-8524406-7114852

PlayStation 3 - Sales (n. d.). in Wikipedia, the Free Encyclopedia. Retrieved April 26, 2007, from http://en.wikipedia.org/wiki/PlayStation_3#Sales

Samsung BD-P1000 (n. d.). Retrieved April 26, 2007, from Amazon: http://www.amazon.co.uk/Samsung-BD-P1000-XEU-Blu-Player/dp/B000ICKB2C/ref=sr_1_1/026-8524406-7114852?ie=UTF8&s=electronics&qid=1177635943&sr=1-1

Schilling, M. (Feb 1, 2007). Sony stox rocked by hints of PS3 price cut. Retrieved 23 April 2007 from http://www.variety.com/article/VR1117958491.html?categoryid=1079&cs=1

Sony PlayStation 3 Console (n. d.). Retrieved April 26, 2007, from Amazon: http://www.amazon.co.uk/Sony-PlayStation-Console-Premium-Version/dp/B0007SV734/ref=cm_lmf_img_1/026-8524406-7114852

Sony to slash chip spending. (2007). Retrieved April 26, 2007 from Reutres: http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2007-02-13T113644Z_01_T9410_RTRIDST_0_SONY-CHIPS-UPDATE-4.XML&rpc=66&type=qcna

Thorsen, T. (2005). Annual Xbox 360 price cuts. Retrieved April 26, 2007, from Gamespot: http://uk.gamespot.com/xbox360/action/halo3/news.html?sid=6133951

Truta, F. (2007). Chart Tracker Rat Leaks PS3 Sales Figures – Investigation on the Way. Retrieved April 26, 2007, from the Softpedia News Area: http://news.softpedia.com/news/Chart-Tracker-Rat-Leaks-PS3-Sales-Figures-Investigation-on-the-Way-51868.shtml

What is Wii (n. d.). Retrieved April 26, 2007, from Nintendo: http://wii.nintendo.com/whatiswii_index.jsp

Xbox, Which Console for You? (n. d.). Retrieved April 26, 2007, from Xbox: http://www.xbox.com/en-US/hardware/compare101.htm?WT.svl=nav

Xbox 360 Console (n. d.). Retrieved April 26, 2007, from Amazon: http://www.amazon.co.uk/Xbox-360-Console-wireless-controller/dp/B0007SV72A?tag2=sciforumscom-21

Xbox 360 HD DVD Player (n. d.). Retrieved April 26, 2007, from Amazon: http://www.amazon.co.uk/Xbox-360-HD-DVD-Player/dp/B000FNKQCE/ref=sr_1_1/026-8524406-7114852?ie=UTF8&s=videogames&qid=1177684067&sr=1-1