Saturday, November 6th, 2021
Manufacturers are pessimistic
That’s why game consoles are hard to come by
The demand for game consoles remains high and the supply is far too scarce. There is no improvement in sight until Christmas. Contrary to what you might think, the ongoing hype is hardly a cause for joy for the console manufacturers.
Queues, overburdened online shops, frustrated customers: this is almost a part of the start of sales of highly sought-after new toys. With the Playstation 5 from Sony and Microsoft’s Xbox Series X, however, this is now a permanent condition. Since the start of sales almost a year ago, it has been virtually impossible to buy the devices just like that – and that will probably not change until Christmas. The reasons for the persistent delivery problems are the same as those that plague the automotive industry, for example: a lack of raw materials and the associated parts shortage, plus disruptions in the international movement of goods.
“Game consoles are very complex products made up of many hundreds of parts – and it’s enough that one thing is missing to not be able to build something,” says Willy Shih, professor at Harvard Business School and an expert in managing international supply chains. Above all, this means frustration for customers. Because new devices usually only come onto the market sporadically and in very small quantities, which are often sold out in seconds.
It only looks better with the Xbox Series S, the smaller and slightly less powerful sister model of the Series X, and with some of the older models of Nintendo’s Switch. The situation was particularly bad at the start of sales, says Petra Fröhlich, editor-in-chief of the specialist portal “Gameswirtschaft.de”, who has observed the drama about the new consoles from the start: some customers who had ordered and paid long before they were released had months to go wait for their goods. The situation is no longer that dramatic, but it is still very tense.
Servers break down during sales promotions
“When global trade comes to a standstill, as it did in the spring after the” Ever Given “accident in the Suez Canal, there are no consoles either – we were able to follow that in real time.” Unlike Apple, for example, Sony and Microsoft hardly have their own sales channels for their products; sales are almost exclusively through electronics and toy retailers. “As a result, it is completely unpredictable when and where new consoles will be available, and it is also not announced – which is often only because the dealers themselves only know very little in advance,” says Fröhlich.
With the few announced sales campaigns, the servers of even large online retailers kept breaking down – and breaking down – the rush is too big. A whole small industry of helpers has emerged around the scarce but much sought-after devices, who are supposed to help desperate customers with their purchases. These are, for example, bots on Twitter that automatically report available devices. And of course there are also those in such a market who earn good money with the scarcity – so-called resellers, who resell new Xbox and Playstation consoles at a premium.
For the console manufacturers, the ongoing hype about the scarce devices is hardly a reason to be happy, after all, they lose a lot of money. “Console manufacturers don’t make a lot of money with the hardware, that’s just the business model,” says Willy Shih. Companies only make profits by selling games or subscriptions to game flat rates such as Microsoft’s Game Pass.
Nintendo has to correct its forecast downwards
But if you don’t have a console, you don’t buy anything for it. Game consoles are often even sold below production price – later income makes up for the loss. However, this means that manufacturers are often more cautious in their demand forecasts, as Shih explains. “It is very difficult to predict demand correctly,” he says – this is the case even in “normal times”, i.e. without a pandemic. However, this drove up demand because many people were more at home and had additional money available.
“If the chip crisis then comes along, it is clear that it will take even longer before the problem is resolved.” The manufacturers themselves are hardly more optimistic: Sony was able to report an increase in sold consoles when it presented its quarterly figures. The sales forecast for the current financial year until March 2022 remains unchanged, said CFO Hiroki Totoki at the presentation of the figures: “There are also several factors that massively limit the supply of Playstation 5 consoles. But we will continue to try everything to Meet customer demand. ”
Nintendo only had to adjust the sales forecast for its Switch downwards on Thursday due to ongoing supply problems. And Microsoft’s Xbox boss Phil Spencer does not expect the situation to ease quickly either. “The problem will stay with us for months and months,” he said in an interview with US medium “The Wrap” at the end of September. “Definitely by the end of the calendar year and into the coming year.”