Unprecedented demand for consumer electronics devices amid the COVID-19 pandemic has led to a global microchip shortage, which is severely impacting the production of hardware including video game consoles.
Microsoft Corp. and Sony Corp. are among the companies feeling the squeeze, as demand for their new consoles has continued to vastly outstrip supply. Although both companies have said they expect to resolve the shipment issues and release a greater number of units in the second half of this year, the lessons learned from the pandemic may push the console makers to reassess the way they handle traditional release cycles, analysts said on the latest episode of "MediaTalk," an S&P Global Market Intelligence podcast.
Chris Rogers, a global trade and logistics analyst at Panjiva, a business line of S&P Global Market Intelligence, said the launches of Microsoft's Xbox Series S/X and Sony's PlayStation 5 in November 2020 led to a massive surge in U.S. video game console shipments, which jumped 220% year over year in the fourth quarter of 2020. Panjiva data also showed continued console shipment growth into 2021, with an increase in imports in both January and February.
Kagan, a media market research group within S&P Global Market Intelligence, saw similar console shipment trends globally. Neil Barbour, an analyst tracking the technology and media sectors at Kagan, said the most recent fourth-quarter 2020 shipment data showed a 10% increase in global unit shipments year over year, up to 21.3 million units in that quarter alone.
Despite the increase in shipments, many consumers are still unable to get their hands on the new hardware, which raises questions about whether the console makers may need to rethink their supply chain strategies after the pandemic subsides.
Rogers said he has seen evidence that companies are exploring a variety of options: "We've seen a lot of discussions such as, do we move to less-lean supply chains? Do we look to have duplicate sources of our various materials from duplicate countries? Do we ship sooner and accept that we're going to have some cash flow sit in inventory rather than leaving everything as late as we can?"
One post-pandemic strategy for console makers may be a harder turn toward cloud gaming over traditional physical release cycles, given the relative simplicity of a cloud release versus the complications of physical releases dependent in part on component makers, Rogers said.
Could that make the PlayStation 5 and the Xbox Series X/S among the last round of consoles? "The answer to that is still 'Maybe,'" said Kagan's Barbour. "It depends on what consumers feel about it [cloud gaming] in two or three years. If they can turn it on and it works, then maybe that takes some of the strain of the console cycle away from the vendors, and they can concentrate more on just publishing software," he said.