High PS5 demand and global chip shortages lead Sony to make more PS4s than initially planned

The global chip shortage caused by the pandemic has created challenges for many tech manufacturers. The PlayStation 5 SoC is built by TSMC and designed by AMD, increasing the competition for the available supply worldwide.

Because of the logistic issues created by the chip shortage, the company had to cut production plans for the PS5 by one million consoles. The console maker has found that not even a higher price offer will not be able to secure the procurement of components because all current production has been sold, and all shipping costs have escalated. This was caused partly because of an increase in demand driven by the pandemic and cryptocurrency miners, but also a highly concentrated market of suppliers. In an interview with PC Gamer, Dr. Thomas Goldsby, the Haslam Chair of Logistics at the University of Tennessee’s Master’s of Science in Supply Chain Management online program explains:

“So here we’ve got demand, on the one hand, that’s just off the charts. And we’ve got the supply chain that is handicapped by virtue of getting access to materials, very constrained production capacity, and then slow transportation connecting the dots. You add it all up, and that’s where we are right now.”

Sony decided to produce more PlayStation4s to help “fill the supply vacuum and keep gamers within the PlayStation ecosystem”. According to this report by Bloomberg, “despite having plans to discontinue assembly at the end of 2021”, Sony will continue producing PS4s throughout 2022 to make up for the demand for the new PlayStation 5s. This would give the Japanese conglomerate “more leeway when negotiating with manufacturing partners for a better deal”. The chip shortage has been estimated to last until early 2023, with some parts costing as little as one dollar. Kotaku explains that “existing lines are fully depreciated and fine-tuned for almost perfect yields, meaning basic display drivers can be made for less than a dollar and more advanced versions for not much more”.

Because of this issue, Sony’s PlayStation 5 consoles failed to transition as smoothly from the previous generation, as hoped by Jim Ryan. The PS4 is one of the few consoles that are part of the “100 million club”, a “notable landmark for any console”. It is in Sony’s interest to maintain a smooth transition to the new generation “at a scale and pace […] never delivered before”, in order to protect and enhance the brand. According to PC Gamer, ‘as of September 2021, the PlayStation 5 has sold 13.3 million units in total, while the PS4 sold 7.6 million in its first year (2013), nearly doubling that figure to 14.8 million in its second year of production (2014)’. Reportedly, Sony planned to cease the production of PS4s at the end of 2021. It is now at the mercy of Sony of how long they are planning on maintaining the cross-generational game releases for upcoming titles. Not only that the chip shortage has been slowing down the production of PS5s, but the pandemic has also affected the production of AAA titles. Nvidia also faces similar difficulties, for example, the RTX 2060 12GB is either overpriced or unavailable, causing “partner card availability to ramp starting the end of December through January”, according to PC Gamer. Apple and Samsung’s phone releases have also been postponed, and car manufacturers are forced to descale production.

Featured Image: Fritzchens Fritz on Flickr with license.

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