PS4 Revealed by Sony: Analysts React

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PS4 Revealed by Sony: Analysts React

PS4 (or Playstation 4 was unveiled by Sony Corporation (NYSE:SNE) (TYO:6758)  recently. Sony is launching this new game console seven years after the PS3. The company emphasized advances on the gaming front, such as greater image resolution, and controllers offering light and touch functions. PS4 also offers enhanced features that leverage cloud computing, enabling not only high-speed networked games but downloading of game software and sharing data with the PS Vita or smartphones. The company plans to put the console on sale ready for the 2013 holiday shopping season but has not announced any pricing details.

Yesterday we brought you the initial impressions from the video game nerds and investors.  Overall the views about Playstation 4 were positive but with some caveats. Today we are focusing on what analysts at various large firms think about PS4.


From game console to home server

Despite the launch of the PS Vita, Sony has cut its 13/3 estimate for mobile game hardware sales from an initial 16mn units to 7mn, indicating the weak market for dedicated game devices. Although the PS4 is primarily targeted at heavy gamers, the company also sees a role for it as a home server, sharing music and video data with a wide range of other devices. Seamless sharing of data with smartphones and tablets would be a positive step forward for Sony’s network strategy, in our view.

Sterne Agee

We believe the event was largely as anticipated. With not too many details on Ps4 available yet, it is difficult to draw big conclusions. Still, Sony Corporation (NYSE:SNE) (TYO:6758)  may get a slight first mover advantage over Microsoft. The console will launch in the holiday 2013 window.

Key Takeaways on PS4 from Sterne Agee:

The big themes with respect to PS4 include: Simple (easy to develop, consumer friendly, and we believe the console will be cheaper than the original PS3), Immediate (i.e. reduced downtime when restarting a game), Social (controller will allow sharing of videos through a “share” button and facilitate spectating),
Integrated (connectivity with several devices), etc.

While games will primarily be played on physical discs, digital gameplay is expected to become easier, although not much detail was provided on this front. Downloading games will be more efficient, allowing purchased games to be played immediately, before the full game finishes downloading. Additionally, games can download in the background while other games are being played or while the console is turned off. Users will be able to demo games in the Playstation Store prior to purchasing.

PS4 will use data about gamers to predict games they may want to purchase, and pre-install those games for the user prior to the user purchasing the game. Users will be able to purchase games through the Playstation Network, eventually including titles from PS1, PS2, and PS3.

The PS4 comes with a new controller with improved latency, enhanced rumble, a touchpad, a share button, a headphone jack, and a lightbar for motion control via the move technology. Users can stream games to the PS Vita. In other words, a game can be paused on the console, and transferred to the PS Vita to resume play, and vice versa. The console has a new instant sleep mode where gameplay can be suspended, allowing the user to pick up right where they left off when they want to start playing again.

PS4 will allow users to connect to their social networks like Facebook and Ustream to find and play with their friends. We understand that there will not be native backwards compatibility, but the Gaikai technology will allow older titles to be played digitally. Blizzard is bringing Diablo III, a PC game, to the PS3 and PS4. Other announced games include: Deep Down, Knack, Killzone: Shadow Fall, The Witness, Infamous: Second Son, Drive Club, Watch Dogs, and Destiny.

Deutsche Bank analysts note:

The price for PlayStation 4 (PS4) is not set, and launch is planned for the year-end holiday season. The processor is a custom eight-core AMD x86 CPU with an integrated GPU (next-gen Radeon) on the same chip. The console will have 8GB DDR5 memory, a Blu-ray drive, and a HDD. It can also function as a home server, not only for PS3 and earlier titles, but will also support remote play of PS4 games on a PS VITA.

By downloading special apps, iOS and Android devices can also act as clients. The PS4 incorporates technology from a US firm it purchased (Gaikai) that further enhances networking functions. It will be able to stream games regardless of time and place, and share game experiences via SNS.

Deutche Bank analysts are:

left with a positive overall impression of the announcement. While there were no surprises, we like that the PS4 fully utilizes existing technologies. The impact it will have on revenue is an unknown. We will be watching for 1) the price announcement (possibly around $450 to avoid per-unit losses), 2) how it will utilize existing models such as the PS3, 3) the emergence of synergy effects with other products including TVs, VAIO, and DSCs, and 4) expenditure on servers and software to beef up its network services. We will also be monitoring whether the PS4 can expand its core gamer base and spur demand by light users for its non-gaming functions We see a neutral impact on the share price.

Morgan Stanley

Morgan Stanley believes PlayStation 4 (the PS4) and the next gen Xbox are both likely to use processors from AMD, and the chips probably will be made at TSMC, using 28nm process.

Sizing up the opportunity: Sony Corporation (NYSE:SNE) (TYO:6758) ’s PS1 sold over 100 million units over its lifespan, PS2 sold over 150 million units, and PS3 sold over 70 million units. The opportunity for dedicated gaming consoles may be shrinking, but as TSMC did not make the previous gen chips, it represents a new opportunity. Additionally, we
believe the die size for a game console chip is around 10x that of an applications processor for mobile phones.

Therefore, we estimate that each incremental 10 million game console chips would add ~1% to TSMC’s top line.

Stock Impact: Unless the console sales are significantly higher than expected, we would not expect revenue contribution of more than a few percent. However, looking at it more structurally, it shows evidence that, at 28nm, TSMC’s market share is more dominant than before. In 2013, TSMC’s 28nm market share probably will drop from almost 100% in 2012, but it will stay at a high level. We would expect small 28nm revenues from GlobalFoundries, UMC and Samsung, but expect the majority to stay at TSMC.

Bank of America Merrill Lynch (BAML)

(PS4) PlayStation 4 launch on track as a 2013 publisher catalyst Sony unveiled the PS4 with a faster CPU, stronger GPU, a new touch-sensitive controller, and new motion capture camera. PS4 is designed to benefit from more realistic graphics, shorter start-up and load times, a richer set of online features including a new “broadcast” button on controller to record and share video, and new business models for publishers such as free-2-play games and DLC. Sony Corporation (NYSE:SNE) (TYO:6758) was clear PS4 will not be backwards compatible as players must stream older games online. PS4 will launch in “Holiday 2013”, which is key as console launches (and the build up hype) will remain potential 2013 publisher catalysts.

Console has better graphics and memory capabilities

Sony Corporation (NYSE:SNE) (TYO:6758) compared PlayStation 4 (the PS4) to a high-end gaming PC with an 8 core x86 CPU, 8GB of GDDR5 memory (vs. 512MB GDDR3 in PS3), and a local hard drive. While we aren’t expecting a big graphic leap forward in the first 12 months of the console cycle, we liked the trailers with what appeared to be more realistic facial animations and skin textures, better lighting, and larger environments. With potential for 30,000 polygons per character vs. 15,000 on the best PS3 games, developers said PS4 will enable deeper and more emotional gaming experiences.

Sony applies some lessons from the PS3 launch

Sony lost share to Microsoft Corporation (NASDAQ:MSFT) in the last cycle due to 1) a later launch date for PS3 vs. xBox, 2) a higher initial price point of $499 vs. $299, 3) a proprietary Cell processor that some developers found complex, and 4) a poorly planned online service. Announcing the PS4 ahead of Microsoft’s next console, switching from its
Cell to a more common chipset, and enhancing its online network could help Sony take early developer/consumer mindshare, although xBox Live subs. could be hard to convert to PS4 in the US. While price is still TBD, articles suggest Sony will use lower-cost PC components that should enable better pricing.

Solid publisher support; Activision has early visibility

Sony showcased several first party titles including Killzone, Infamous, and Drive Club and a few third-party publishers including Ubisoft (Watch Dogs), Capcom, and Activision (Destiny) showed titles that will be available during the launch window. Sony said over 60 publishers are developing for PS4. Activision Blizzard, Inc. (NASDAQ:ATVI)’s Blizzard was present to announce Diablo 3 for PS4 this year, and also showcased Destiny which we expect in 2014. We think Diablo 3 on PS3 could drive 2-3mn incremental units (over 12 months) to the 10mn+ units Activision Blizzard, Inc. (NASDAQ:ATVI) sold on PC in 2012.

Still expect SW sales down y/y in 2013, 2014 looks better

History shows software sales are usually down during the first year of a console transition (we are not counting the Wii U launch last year) and, despite some big titles (TTWO’s GTA5 in Sept) we expect software sales to be down y/y in 2013 as sales of last generation titles decline (also, new consoles often have supply shortages). However, 2014 has nice potential for growth as both the PS4 and new Microsoft Corporation (NASDAQ:MSFT) console installed bases grow.

Readers will have to draw their own conclusions.

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