Sony Corporation (NYSE: SONY) announced a price hike for its flagship PlayStation 5 console in multiple international markets, citing inflationary pressures and the general economic environment.
As a result, shares gained about 2% to bounce off the intra-week lows.
Why is Sony Hiking Prices?
Sony said the hikes will take effect immediately in all mentioned markets, except in Japan, where the price increase will come into force on Sep. 15. The company will also not be hiking PS5 prices in the U.S. market.
“The global economic environment is a challenge that many of you around the world are no doubt experiencing,” Sony wrote in a blog post. “We’re seeing high global inflation rates, as well as adverse currency trends, impacting consumers and creating pressure on many industries.”
In Europe, the Japanese conglomerate will raise the PS5’s price by 50 euros ($50) to 549.99 euros for the disc version and 449.99 euros for the digital version. In the U.K., the console’s cost will increase by £30 increase to £479.99 for the disc version and £399.99 for the digital version.
PlayStation’s price in the home market will increase by 5000 yen to 54,980 yen for the disc version and 44,980 yen for the digital model. The price hikes will also affect several other markets including China, Australia, Mexico, and Canada.
The move comes after gaming giants Microsoft and Nintendo struggled to maintain strong sales in the second quarter as the coronavirus-induced gaming boom fades. Sony reported a 2% drop in sales in its gaming business year-over-year while operating profit slumped almost 37%. The company also reduced its full-year profit outlook for its gaming unit.
The Japanese company also continues to struggle with global supply chain constraints which make it hard to produce enough PS5 consoles to meet robust demand. Sony’s rival Microsoft hasn’t yet announced price hikes for its Xbox console.
Ampere Analysis’s Piers Harding-Rolls said the PS5 has been extremely affected by supply chain issues, “with many consumers unable to buy Sony’s latest console, and the fact that Microsoft has shown no indication yet of increasing its Xbox Series pricing, there is no doubt that this price increase will have been a hard decision to make.”
He said Sony has had to pass on some of the price hikes in order to meet its hardware profitability targets as record-high inflation continues to weigh on the company’s supply chain and distribution costs.
According to Ampere Analysis, Sony has sold 21 million consoles worldwide so far, compared to Microsoft’s Xbox sales of 13.8 million.
Harding-Rolls said he does not expect price hikes to discourage gamers from purchasing PS5 as demand remains strong. He said the price increase is expected to have a minimal impact on PS5’s sales and believes that the company’s forecast for its flagship gaming console will remain unchanged.
Last month, Sony slashed its profit outlook after posting weaker-than-expected results for its console business in the first quarter, citing fading consumer interest due to a lack of new games.
Kantan Games founder Serkan Toto described Sony’s disappointing first quarter as “a bump in the road,” but he added that the tech giant is now getting an increasing number of PS5 consoles into its stores, particularly in the U.S. and Europe.
The Tokyo-based company also trimmed its annual operating profit forecast for its gaming business by 16% due to expectations of weaker games sales from external developers. The company-wide operating forecast for the current fiscal year was trimmed by 4% to 1.11 trillion yen ($8.37 billion).
On a more positive note, Sony’s Q1 operating profit rose by 9.6% to 307 billion yen, topping the consensus estimates thanks to strong demand for its movies and TV shows.
Summary
Sony is hiking the prices of its flagship product, PlayStation 5, as the electronic giant looks to pass on higher input costs to consumers and protect its margins.
