Pachter: Price Cuts Possible For PS2, PS3, Wii In 2008

As the industry heads into the holiday season, Wedbush Morgan analyst Michael Pachter released his predictions for the near future and comments on the state of the industry, suggesting that the trend of console price cuts will continue into next Spring. Pachter stated that, while sales of next-gen hardware are not as strong as they were during the same period of 2002, when console prices averaged under $200, the last few months have seen a spike in hardware sales thanks to recent price cuts and the release of Halo 3. According to Pachter, the introduction of the new, slimmer PSP and the 40 GB PS3 is expected to continue the trend, triggering a "modest increase" in hardware sales over the remainder of the year. Said Pachter, "We continue to believe that better-than-expected PS2 software sales this year (down only 24 percent year-to-date compared to our forecast of down 32 percent) will drive overall growth well into next year, and we expect next generation console software sales growth to highly correlate to any increase in the rate of PS2 software sales decline." The analyst also noted that the price cuts for Xbox 360 and PS3 earlier this summer set off a wave of additional discounting in the month of October."[Sony] will likely cut the price for the PS2 at the beginning of next year - note that Sony recently raised its forecast for PS2 sales by 2 million this year, ending March 31, 2008," he added. Pachter continued, "We expect a further price cut for the PS3 in the spring, when blockbuster games Grand Theft Auto IV and PS3 exclusives Metal Gear Solid 4, Little Big Planet and Gran Turismo 5 will launch. We do not expect a price cut for the Wii until supply and demand are in balance, but believe that the launch of Super Smash Brothers Brawl on February 10, 2008 presents an opportunity to adjust pricing." Though Pachter noted that demand for PS3 is tracking below the analyst firm's projections, he believes the recent price cut (the second within the past four months) and the introduction of the 40 GB model "should increase demand for the console." The Xbox 360's demand is in line with Wedbush Morgan's expectation, with sales of the console anticipated to benefit from Halo 3 sales during the holiday. "Demand for the Wii remains strong, limited only by continued tight supply. As demand for the PS3 and 360 hardware picks up over the balance of the year, we expect a greater decline in PS2 software sales. We currently forecast 19 percent software sales growth for 2007, with a 32 percent decline in PS2 software sales implying a greater than 42 percent decline over the balance of the year," he noted. Lastly, the analyst recommended Activision, EA, GameStop, THQ and Ubisoft as strong performers in the near future, though he advised investors to sell Take-Two shares, concluding, "We expect industry sales to be strong for the balance of 2007 and the first several months of 2008, with the strong release schedule early in the year sustaining double-digit sales growth. Should we be right, we think that video game investors’ concerns about the economy will subside, and expect the U.S. publisher stocks to continue to appreciate."