Pachter: Stronger Hardware Sales Ahead With Better Software, Price Cuts

Wedbush Morgan's Michael Pachter has said that June's NPD U.S. sales results show that consumers are less concerned about this console transition than previous cycles, with stronger hardware demand to follow in the lead-up to the holiday season. While hardware sales tracked relatively close to Pachter's estimates in the case of the Xbox 360 and Wii, he believes the still slack take-up of PS3 should be offset in July by the recent price-cut, which will have the added effect of declining PS2 software sales. "We were pleasantly surprised by the strong sales," said Pachter, adding "While some detractors may consider the next generation cycle off to a poor start, we think that improving hardware and software sales indicate strong demand for the still relatively light software lineup on the next gen consoles, and we believe that once a greater variety of compelling software is released later this year, demand for the new hardware will increase." Looking specifically at the PS2, Pachter says he expects Spider-Man 3, Shrek the Third, Ratatouille, Transformers, and Harry Potter and the Order of the Phoenix to sell more units on the console than on any other platform. "The degree of PS2 software sales declines in the second half of the year will depend upon next generation console sales," he added, "as most next generation consoles are likely replacements for current generation consoles." Running through most of the major third party publishers, he noted that Activision's sales were up 7% sequentially from last month and up 136% over last year on continued strong sales of Guitar Hero II, and adds that the publisher has already preannounced stronger than expected Q1 results. Atari's sales were up 28% sequentially over last month but down 46% over last year, as Dragon Ball Z Harukanaru Densetsu sold "relatively light." EA, too, saw lighter than expected sales of Harry Potter and the Order of the Phoenix during the month, leading to sales up 24% over May, but down 33% from last June. "Despite the shortfall," said Pachter, "we believe that strong sell-in of Harry Potter particularly in Europe will enable Electronic Arts to meet revenue expectations for the quarter." Majesco saw sales up 33% from May and down 14% from last year on continued sales of Cooking Mama and Brain Boost, and Midway's sales were up 69% from last month and were down 19% from last June, with new release Hour of Victory selling less than Pachter's 30,000 units estimate. Take-Two’s sales were up 181% from last month, and up 12% from last June with The Darkness, The BIGS, and Fantastic 4 driving sales, and THQ's sales were up 65% from May and down 52% from last June, with Pixar's Ratatouille selling well below Wedbush's 300,000 units estimate. Finally, Ubisoft's sales were up 103% from last month and up 47% over last June, led by Surf’s Up, Rainbow Six: Vegas and Splinter Cell Double Agent. "We are confident that Ubisoft will meet its revenue guidance for the quarter due to better sales in Europe and stronger sell-in of its new releases," said Pachter. Concluding, Pachter says June's sales were much higher than he expected, primarily due to Nintendo's software sales, and that he expects hardware sales will pick up after Microsoft cuts Xbox 360 prices "on at least one SKU." "Although we do not expect another PS3 price cut this year," he added, "we think a price cut for the PS2 is possible. Any hardware price reduction could serve as a catalyst for sales growth later in the year."