Friday, May 18, 2007

PS3 Buildup

Thinking hard about how the world really is can HURT, so I went back to some old game news and found something nicely written:

If you thought the pile of PS3 at your local retailer was big, think again!
I spent my lunch hour reading the latest news and noticed the Sony announcement of the financial results for the year on Yahoo. At the end of this article there were a few sentences that caught my eye: "A total of 5.5 million PlayStation 3 consoles were shipped between the November launch and the end of March. That's below Sony's target of 6 million. The company cited production delays that have now been fixed. The shipment numbers count consoles as they leave Sony's factories and include those in warehouses and en route to retailers. The number of consoles sold to retailers stood at around 3.6 million, said Oneda."

Having 1.9 million (5.5 million minus 3.6 million) PS3 en route and in warehouses seems like an awful lot, doesn't it? Since my company does a lot of shipping from Asia to Europe and North America and I know the shipping times, I decided to apply some math to see where all those 1.9 million actually are.

First, let's assume that all shipping is done by boat. Given the reports of PS3's stacked up in stores, there is no need to air freight PS3 anymore. Shipping time from Asia to North America is 6 weeks if shipping to the east coast, less to the west coast. Shipping time from Asia to Europe is 4 weeks. For shipping time within Asia, let's assume 2 weeks. We will assume that the PS3 manufacturer needs 4 days to get the newly manufactured units on the boat. At the other end, let's assume 4 days to get the PS3's off the boat and into the Sony warehouse and let's assume one week to ship it from the warehouse to the retailer. Total transit time for North America is then 57 days, for Europe 43 days and for Asia 29 days.

Now let's look at the sales figures and see what that gives. NPD reports indicate that the PS3 is selling about 130k per month in the US. Let's be generous and say they sell 6k per day when adding Canada. For Europe, let's use the same number (6k per day) since there is not that much data available. For Asia, the PS sells about 15k per week in Japan, so let's say 3k per day when adding the other Asian countries.

Given all these assumptions, how many PS3 need to be in transit to keep the product flowing to retailers:
- For North America: 57 * 6k = 342k
- For Europe: 43 * 6k = 258k
- For Asia: 29 * 3k = 87k
Total: 687k

With 687k in transit needed to resupply the retailers, where are the other 1.2+ million PS3? Most likely in storage waiting for sales to pick up. That is a gigantic amount of consoles to have in inventory, costing interest and not producing revenue. Sony must be in deeper trouble than I thought.

It can be argued that other territories need to be added such as Australia/New Zeeland but these are small and do not materially affect the analysis. The other contributor could be if Sony was stockpiling PS3 for a launch but I am only aware of Korea which is a PC-centric market up to now.

Nifty! Someone is actually thinking!

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