Sony’s Potential PS5 Pro Launch

Recent rumors indicate rising expectations in the gaming industry regarding Sony’s potential rollout of a PS5 Pro, an upgraded version of its original PS5 model.

Analysts’ Insights

In a recent note, Citi analysts discussed the financial implications of a PS5 Pro launch for Sony. While the analysts acknowledged that the company regularly makes design modifications to reduce costs, they did not make any conclusive assumptions about the potential launch of the PS5 Pro.

They stated, “If a PS5 Pro were to be launched, we think it could improve margins and boost earnings to some extent, although it would depend on the Cost of Goods Sold (CoGS) structure.”

Favorable Timing for Launch

Citi analysts identified several factors that support the potential launch of a PS5 Pro:
– Timing: The launch appears timely, especially considering the initial delays of the PS5 due to COVID-19 disruptions and chip shortages. These issues postponed the PS5’s market uptake by one to two years compared to the PS4.
– Product Cycle: Releasing a Pro model five years after the original PS5 aligns with a typical product cycle. Notably, Sony launched the PS4 Pro three years after the PS4.
– Industry Strategy: Sony’s participation in the 2024 Tokyo Game Show, following a five-year absence, hints at significant upcoming announcements. The introduction of competitive consoles may also compel Sony to release an upgraded PS5.

Profitability Concerns

The potential PS5 Pro may address profitability issues as the original PS5 and its Slim variant possess less favorable CoGS structures than previous PlayStation consoles. Analysts suggested that launching a high-priced Pro model could improve margins, even if it results in reduced sales volume.

Risks Involved

Despite the opportunities, there are notable risks:
– Core Design Stability: Sony’s president has previously stated that there are no plans to alter the core semiconductor processes of the PS5, suggesting that changes, if any, may not lead to significant cost reductions.
– Adoption Rates: The introduction of a more expensive model could lead to slower adoption rates and lower sales volume. Recent price increases for the PS5 in Japan also contradict standard inventory reduction strategies before a new product launch.

Market Reaction

Historically, announcements concerning console upgrades positively influence Sony’s share price. Citi analysts believe that if the PS5 Pro is announced, it will likely be well received. They expressed interest in improvements regarding the CoGS structure and performance, as well as the potential for expanding game software opportunities.