Nintendo, Sony hit by AI boom driven memory price surge: Will gamers pay more?
The global artificial intelligence boom is driving a massive surge in memory chip prices, forcing Sony and Nintendo to raise hardware prices to protect their profit margins.
As reported by Reuters, both gaming giants are now grappling with supply chain disruptions and increased production costs.
In the first quarter (Q1), the memory chip prices doubled and are expected to rise another 63 percent this quarter. The increase in memory chip prices is fuelled by growing demands of AI data centers, responsible for constraining supply chains for consumer electronics, including smartphones, gaming, and laptops.
Nintendo’s response and risks
According to Nintendo, the Switch 2 will see a price hike of 10,000 yen in Japan and a $50 increase in the US, taking effect from September globally.
As reported by BBC, console prices would rise from $449.99 to $499.99 in the US, and €469.99 to €499.99 in most European countries.
Talking about financial impact, higher component costs and tariffs are expected to add 100 billion yen to Super Mario makers’ cost this year, as reported by President Shuntaro Furukawa.
Analysts warn that Nintendo’s casual fan base is price-sensitive, placing pressure on the company to release “blockbuster” games to justify the higher console cost.
Nintendo also increased prices of its older Switch and online gaming services. This year, the company is expected to sell $16.5 million Switch 2 units compared to 19.9 million units last year.
Serkan Toto, founder of the Kantan Games consultancy, said “Nintendo is now under more pressure than ever to get more first-party blockbusters out this fiscal year to boost demand for the system.”
Sony strategy to cope
To manage the price surge, Sony also announced in March to increase the standard PS5 price by $100 to $649.99 in the US. Although Sony has secured memory for the current year, it expects high prices to persist into next year.
But, the company is seeking other ways to cut costs. Moreover, Sony is also relying on the November release of Grand Theft Auto VI, helping the company to drive high-margin software sales.
“Sony’s bottom line stands to benefit significantly from the high-margin software sales and ecosystem engagement this launch should trigger,” Amir Anvarzadeh of Asymmetric Advisors wrote.
According to both companies, price hikes only serve to neutralize the rising component costs driven by supply chain shortages.
