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Citing High Component Costs, Sony's PS5 Will Launch at High Price, Low Unit Volume

By Anders Bylund – Apr 16, 2020 at 11:19AM

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Memory chips are both expensive and in tight supply, and Sony is putting a lot of them in its next gaming console.

Sony (SONY -0.92%) is scaling back the early production runs of the upcoming PlayStation 5 gaming console, according to Bloomberg's anonymous insiders. The company expects moderate consumer interest in the console at launch due to a big-ticket price tag.

Apples to apples

Sony has set up production runs and component orders consistent with roughly 5 million or 6 million PS5 units over the system's first two quarters, down from 7.5 million PS4 sales across that generation's first two quarters. Sources said that Sony's production capacity has not been limited by the coronavirus so far, but that tight supplies of several key components will force the Japanese consumer electronics giant to launch the PS5 at an uncomfortably high street price. The initial price could land anywhere between $499 and $549 per unit, dramatically higher than the PS4 console's launch price of $399.

This would put the PS5 on a comparable footing to Microsoft's (MSFT 0.13%) upcoming Series X console, which is widely expected to launch in time for the holidays at a price point near $450.

A young gamer looks down at the floor, resting his head in one hand and holding a video game controller in the other.

Image source: Getty Images.

Both consoles feature similar central processors and graphics solutions from Advanced Micro Devices, and they will also ship with huge amounts of high-speed RAM alongside memory-based solid-state devices (SSD) for long-term data storage. High and stable memory-chip prices are adding up to costly component lists for both Microsoft and Sony, as both companies aim to impress consumers with fast game-loading times and smooth overall user experience.

Sony generally won the last generation's head-to-head sales battles against Microsoft, partly thanks to a lower price point. This round is shaping up to a more direct apples-to-apples comparison, both in terms of unit prices and system specifications. Platform-exclusive game titles and established brand loyalty should determine which console finds the larger market at launch.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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