Pachter: PS3 Price Drop Thanksgiving & Early 2008?

Wedbush Morgan analyst Michael Pachter has revealed his predictions for August NPD North American hardware and game sales, due after market close on Thursday, September 13 - forecasting sales of $445 million, up 12% compared to last year’s $399 million. Pachter noted of the software sales predictions: "Our estimate reflects $310 million in sales contribution from new platforms (PS3, Wii, 360, PSP and DS)and current generation software sales of $135 million. Our forecast assumes PS2 software sales of $107 million, down 31% compared to last year and much weaker than the last three month’s average of –20%, but consistent with our full year projection." In particular, he highlighted "...new releases Electronic Arts’ Madden NFL 08 (PS2, PS3, Xbox, 360, GC, DS, PSP, PC, Wii), Nintendo’s Metroid Prime 3: Corruption (Wii), and Take-Two’s BioShock (360, PC) along with continued sales of Activision’s Guitar Hero Encore: Rocks the 80's and Guitar Hero 2, Electronic Arts’ NCAA Football 08, and Nintendo’s Wii Play." Pachter went on to cite specific predicted numbers for August software sales for those publishers which he covers financially - his predictions included EA's Madden at 1.9 million units, Take-Two's BioShock at 600,000, EA's NCAA Football at 300,000 units, and Activision's Guitar Hero Encore at 300,000 units, with EA's Boogie at 150,000 units and THQ's Stuntman and Moto GP combined at 100,000 units. Specific to the PS2, Pachter noted that software sales declines have moderated over the past three months, given the lineup of mass-market games released in May and June (-19% in May, -21% in June, -22% in July). "The degree of PS2 software sales declines in the second half of the year will depend upon next-generation console sales, as most next generation consoles are likely replacements for current generation consoles. As total next-generation hardware sales increase, we expect a corresponding decrease in PS2 software sales, and we have modeled a decline to -31% in August," he said. Hardware Specifics In addition, the analyst's views for console hardware sales for the month of August are as follows: Wii: 420,000 PS3: 150,000 Xbox 360: 240,000 PS2: 225,000 PSP: 210,000 DS: 400,000 GBA: 75,000 Turning to the game hardware market in further detail: "It appears that the supply situation for the Wii has improved," Pachter noted, "with weekly sales averaging 106,000 in July following an average of only 81,000 for the prior 26 weeks. There is no shortage of the other consoles, and we believe that lower prices for the Xbox 360, PSP and PS3 should drive hardware sales for the rest of the summer." In July, Sony cut the price of its 60Gb PS3 model from $599 to $499 and Microsoft followed in early August with a price cut for the Xbox 360 (Core to $279 from $299, Premium to $349 from $399, and Elite to $449 from $479). "Although it is likely that retailers will soon run out of the discontinued 60Gb PS3, we expect a price cut for the new 80Gb model (without a game bundle) to $499 some time before Thanksgiving," Pachter predicted. He continued: "We think that Sony’s recent announcement of an IPO for its financial services unit (with an estimated $3 billion in proceeds) could forebode another PS3 price cut early next year. We believe that the company is interested in subsidizing sales of the console in order to stabilize its market share in the games market and grow its lead in the high-definition DVD market. We expect a price cut no later than April, likely to $399 for the 80Gb model." Finally, on this subject: "Although we do not expect another PS3, PSP, or 360 price cut this year (nor one for the Wii), we think a cut for the PS2 or DS is possible," Pachter added. "Any hardware price reduction could serve as a catalyst for sales growth later in the year." Overall Trends? Pachter reported that most of the major U.S. publishers reported solid June quarter results, with each forecasting at least 12% growth in 2007. May, June, and July sales growth were up 33%, 22%, 11%, respectively, after a relatively weak April, and, Pachter said, "We expect August to be up 'only' 12%, due to tough comparison with last year." U.S. console software sales are up 22% year-to-date, with overall software sales growth (including PC) of 18% year-to-date. Pachter expects overall sales growth (including PC) to remain at 18% for the full year. "Share prices of the major U.S. publishers may continue to be pressured throughout the summer, as consumer sentiment and the macroeconomic environment has turned significantly negative over the past month," Pachter forecasted. "In particular, investors seem laser-focused on individual game performance, with many investors pessimistic about the performance of Madden NFL (due to the lack of a self-congratulatory press release from Electronic Arts) and others concerned about slow early performance for THQ’s Stuntman." Taking some responsibility, Pachter admits, "We are certain that our forecasts contribute to the volatility, as we believe we set expectations that largely become the “consensus” estimates for many games. We think it is important to note that individual publisher performance is a function of the sales of a basket of games." He added, "We are reminded of concerns during the June quarter about poor sell-through of Spider-Man 3 and Shrek the Third for Activision," noting, "The company managed to substantially exceed estimates with higher than expected sales of Guitar Hero and Transformers. We think that Electronic Arts and THQ will similarly surprise the pessimists, with their basket of games performing at or above consensus expectations." Overall, the analyst concluded: "We expect software sales growth to remain at low-to-mid-teen rates in September (in spite of a 29% year-over-year comparison). Should we be right, we think that investors’ concerns about a secular shift away from video games will subside, and we expect the U.S. publisher stocks to continue to appreciate."