Analyst: Hardware Supply Constraints To Hit Holidays?

Analyst Colin Sebastian of Lazard Capital Markets recently released his comments on current industry sales trends leading up to the closely-watched holiday season, stating in particular that hardware supply constraints and lower pricing for PS2 and Wii software may pose health risks for the industry's sales numbers. "Holiday hardware demand may outstrip supplies," Sebastian said. "We believe one of the themes from the upcoming holiday period could be hardware supply constraints, driven by ongoing strong demand for Nintendo’s Wii and a shift in Xbox 360 unit sales from 4Q into the September quarter, while Sony’s PS3 and PSP may benefit from lower price points." Sebastian also noted that, according to Lazard's observations, the pricing of Wii and PS2 software "may be under pressure." He explained, "Our weekly analysis of pricing trends suggests that front-line PS2 pricing continues to shift to $29/$39 from $39/$49. In addition, we note a greater distribution of pricing on new and recently released Wii titles ($29/$39/$49) in contrast to fairly consistent $59 pricing for most PS3 and Xbox 360 releases, which is indicative of the more casual nature of many Wii titles." The analyst also commented on the forecasts of some of the major industry companies. Highlighting Activision, Sebastian said the company is expected to exceed Lazard's estimates for fiscal second quarter revenue on strong sales of Guitar Hero and its catalog titles. Despite slower initial sales of Tony Hawk, Sebastian still expects Activision management to reaffirm its guidance for the remainder of the year, calling Guitar Hero III and Call of Duty IV "key holiday releases." He also commented on Electronic Arts, suggesting that EA's shares "could face near-term choppiness as management could elect to be more conservative with guidance ahead of the holidays." Specifically, Sebastian believes the delay of Army of Two out of the holiday period, combined with slow sales of EA Sports SKUs like NBA Live might lead EA to revise its forecast, though the BioWare/Pandemic acquisition could offset some of these issues. As regards THQ's earnings, Sebastian said, "We are not expecting any big surprises," as the company already has revised its guidance for the year, though he added, "However, we continue to believe F2009 is shaping up well with an improved product lineup and prospects for accelerating growth and margin expansion."