Game console makers warn the chip shortage has 'no end in sight'

Sony and Nintendo say they still can't produce hardware fast enough to meet demand.

The new Nintendo Switch OLED model

The chip shortage has been a continuous roadblock to what is otherwise a record period of growth for the video game industry.

Photo: Nintendo

The global chip shortage is still squeezing the game industry, according to statements from representatives of Nintendo and Sony this week, timed to earnings results. In the words of Nintendo President Shuntaro Furukawa: "There is no end in sight to the semiconductor shortage at this point."

The chip shortage has been a continuous roadblock to what is otherwise a record period of growth for the video game industry, spurred by the pandemic and coupled with broader mainstream popularity of gaming.

While a number of the biggest video game makers continue to post record sales and profits — including Electronics Arts, Capcom and Bandai Namco this week — hardware makers like Microsoft, Nintendo and Sony are still contending with a semiconductor supply crunch affecting much of the electronics industry. Earlier this month, Intel CEO Pat Gelsinger said that the chip shortage is now expected to continue into 2024.

Nintendo's Switch handheld is entering its sixth year on the market, and demand for the device is beginning to wane. The company has sold more than 107 million devices so far, but Nintendo is hoping it can still sell tens of millions of units before it inevitably releases a next-generation version of the device some time in the next few years.

Furukawa said the transition to a new hardware device, amid the shortage and considering Nintendo's poor track record on backward compatibility, is "a major concern for us," according to a transcript translated by VGC. He added that "based on our experiences with the Wii, Nintendo DS and other hardware, it is very clear that one of the major obstacles is how to easily transition from one hardware to the next."

Because Nintendo is more reliant on hardware sales than its competitors, the company reported a 3.6% decline in sales last quarter and flat net profit, despite record software sales in fiscal 2021. It also projected a 20% year-over-year decline in Switch sales (down to 23 million units) in the year ahead.

Sony, which reported a strong quarter on Tuesday despite the crunch on PlayStation 5 supply, said it missed its original fiscal 2021 sales target by 3.3 million consoles, selling only 11.5 million in the device's second year on the market due entirely to constrained supply. The company is selling every console it can produce, but it's had to adjust its forecast on multiple occasions to account for the ongoing chip shortage. Sony expects the situation to improve in the following year, and it set a sales target of 18 million units for fiscal 2022.

"We feel very comfortable that we can get the parts and components, and we feel that there is a bit higher demand than that, so if the question is whether we can meet the demand, I think we're still short somewhat," Hiroki Totoki, Sony's chief financial officer, said on an earnings call earlier this week.

Microsoft, on the other hand, has managed to produce Xbox consoles at a faster clip due to what some analysts suspect is paid priority at semiconductor plants. Thanks to reduced demand for its devices compared to the PS5 and the availability of both a cheaper and more expensive version of new Xbox, the Xbox platform has gained market share against its rival two quarters in a row. (Right now in the U.S., you can order an Xbox Series X from Microsoft's website and have it delivered by June, while the Series S is widely available at all major retailers.)

Yet Microsoft has placed less priority on selling consoles versus signing up consumers for its Game Pass subscription and expanding its audience through cloud gaming.

For Nintendo and Sony, though, the issues run deeper: Nintendo wants a longer runway for the Switch before it has to start investing in the next generation, and Sony needs more consoles in more consumers' hands to sell first-party exclusive games and more subscription products of its own. Both companies are now gearing up to navigate a manufacturing crisis that's persisted for nearly two years, and likely will persist for many more.


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