Analyst: Overall Growth Hot, PS3 Supply Concerns

Market analyst firm Wedbush Morgan Securities is predicting "modest" Western video game sales and growth for the remainder of 2006, with dramatic surges on the tail of new next-generation consoles next year. The firm has also downgraded its predictions for the PS3 and PSP. In its latest research notes, the firm's Michael Pachter has forecast that: "U.S. and European software sales [are] to grow +3% in 2006, +15% in 2007, and +15% in 2008," up from -3% in 2006 as previously predicted, and largely due to stronger than expected software demand on current generation systems. The firm also added that it is lowering North American and European PS3 sales expectations for 2006 from 3.0 million to 2.3 million, adding: "Although Sony continues to insist that it will ship 2 million PS3s globally at launch, another 2 million by year-end, and another 2 million in the March quarter, rumors about component shortages and assembly bottlenecks persist." It continued: "Our prior forecast had presumed that Sony would hit its 4 million-unit shipment figure by year-end, with 50% of units reaching the U.S. and 25% of units reaching Europe. We have conservatively lowered this forecast by 25%, which appears consistent with published reports about capacity constraints." Wedbush Morgan has also lowered the forecast for North American and European PSP sales from 8.5 million to 7.4 million by the end of 2006, and increased its expectations for DS sales from 6.5 million to 8.0 million in the same time period, with both adjustments reflecting year to date market trends. The research note also commends the launch of the Xbox 360, highlighting Microsoft's "phenomenal job of marketing the Xbox 360 in late 2005, and created unful demand for several million hardware units over the holidays. Consumers have continued to buy Xbox 360 hard and software throughout 2006, and we expect the trend to accelerate as more high-profile games are released." The firm predicted increased sales of the 360 as a substitute for the PS3, should hardware supplies of the latter falter. For the month of August 2006's NPD results, due later this week, the firm is predicting North American video game sales of $360 million, up 7% from last year last year, driven primarily by the multiplatform release of Madden 07 and the DS' New Super Mario Bros.. It also noted share price volatility for U.S.-based publishers, which it marked up to investor uncertainty throughout the console transition. "Though share prices are higher year-to-date and we expect appreciation over the remainder of the year," it added, "we expect continued volatility until the launch quantities of the PS3 and Wii are more certain."