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🇰🇷 South Korea /Economy & Trade

Nintendo, Sony Feel the Pinch as 'Chipflation' Hits Gaming Console Profitability

From Hankyoreh · (4m ago) Korean Critical tone

Translated from Korean, summarized and contextualized by DistantNews.

TLDR

  • Sony and Nintendo, major console game makers, are facing profitability pressures and stock price declines due to 'chipflation'—rising semiconductor prices driven by AI data center demand.
  • The increased cost of memory chips is impacting the production costs of consoles like the Nintendo Switch 2 and PlayStation 5, leading to price hikes and concerns about future releases.
  • Analysts predict that the high memory prices could continue until 2028, forcing manufacturers to find ways to offset these rising costs.

The global gaming industry, dominated by giants like Sony and Nintendo, is grappling with an unexpected challenge: 'chipflation.' While their latest consoles, the Nintendo Switch 2 and PlayStation 5, have seen strong sales, the soaring costs of memory chips are casting a shadow over their profitability and market performance.

The rise in memory chip prices could be a factor that puts long-term pressure on profitability.

— NintendoCompany's statement regarding the impact of chip prices on earnings.

Nintendo's stock has seen a significant drop from its peak, despite the success of the Switch 2 and popular titles like 'Pokémon Poccopia.' The company had already warned in February that rising memory chip prices could pressure its earnings. The main chips for the Switch 2 are manufactured by Samsung using an 8-nanometer process, making Nintendo directly susceptible to market fluctuations.

Sony faces a similar predicament. The price of the PlayStation 5 has been increased in several markets, reflecting the higher component costs. Given its reliance on high-spec components, Sony is reportedly more vulnerable to chipflation's impact on profitability than Nintendo. There are even speculations that the release of the PlayStation 6 might be delayed beyond its initial target of 2027.

The entire console gaming industry is likely to be hit hard by the surge in memory prices.

— Robin Zhu, Senior Analyst at BernsteinAnalysis on the broad impact of chipflation on console makers.

This situation is not unique to these two companies. As reported by the Financial Times, analysts at investment bank Bernstein note that the entire console gaming industry is likely to be hit hard. With memory chip supply struggling to keep pace with demand, manufacturers are under pressure to find strategies to mitigate these cost increases. The current situation highlights the intricate global supply chains and the far-reaching impact of demand surges in one sector, like AI data centers, on seemingly unrelated industries.

Manufacturers will have to find ways to offset the cost burden as it will take time for memory supply to catch up with demand.

— Robin Zhu, Senior Analyst at BernsteinCommentary on the challenges facing console manufacturers.
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Originally published by Hankyoreh in Korean. Translated, summarized, and contextualized by our editorial team with added local perspective. Read our editorial standards.

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