PS5 profit margins are shrinking according to a new report from Sony’s Chief Operating Officer (COO) who lays blame on rising costs of parts. Hiroki Totoki, President, CFO, and COO of Sony Group Corporation has said the company has reduced its current fiscal year target of selling 25 million units down to 21 million units. Totoki was quoted as saying that profits for the console are becoming difficult to grow as its lifecycle continues since unlike previous generations, its parts are increasing in price.
Sony’s move to reduce its sales goal, along with its reasoning for doing so, has led to speculation that perhaps future console generations could be higher priced or have lesser gen-over-gen performance gains. Well-known industry insider Kepler_L2 expressed this belief by saying that up until now the industry has been able to rely on a more-or-less flat rate for transistors via FinFETs while reaping the benefits of shrinking dies but now it can no longer do so with newer GAAFETs/CFETs technology.
Cost per transistor has remained flat through FinFETs and will go up with GAAFETs/CFETs.
— Kepler (@Kepler_L2) February 14, 2024
The days of free cost savings with die shrinks is over and things will only get worse.
Future consoles will either have increasingly smaller performance gains or significantly higher prices https://t.co/4UZSOzy4sh
Future strategies
It is debatable how much more consumers are willing to spend on gaming consoles. Prices consistently increase with each new generation but if the performance gain isn’t great enough, or the cost has increased too much, consumers could decide to opt out of purchasing a newer model and stick with the older one instead. With news that PS5 profit margins are sinking because of manufacturing costs, Sony will likely have to examine other cost-cutting measures as well or perhaps attempt to negotiate lower-priced contracts with its partners.
Recently there have been many rumors and speculation regarding potential hardware upgrades for all three console manufacturers but not much regarding pricing strategies for them. Microsoft, Sony, and Nintendo are all expected to be launching their next models sometime between 2025 and 2028. Microsoft has already boasted that its next new model will feature the largest generational hardware leap and a rumor about the PS6 claims a similar goal.