HONG KONG, CHINA - 2021/01/21: Japanese video gaming system brand created and owned by Sony Computer ... [+]
SOPA Images/LightRocket via Getty ImagesHaving sold 4.5 million units at the close of 2020, Sony's CFO Hiroki Totoki projected shipment of 14.8 million units by the end of FY2021 may be ambitious, not that it can't be done.
According to Mat Piscatella, Executive Director and Video Game Industry Advisor for The NPD Group, consumer spending in February for video game hardware, content, and accessories totaled $4.6 billion in the U.S., a 35% increase versus the prior year. Additionally, monthly sales for video game hardware also increased 121% to $406 million versus the previous year.
Considering the global semiconductor shortage, supply is not meeting the demand for PS5s, the fastest-selling hardware in U.S. history. Although the U.S. semiconductor industry leads in global market share, East Asia is leading the trajectory in terms of semiconductor manufacturing capacity. The lack of manufacturing diversification in the wake of geopolitical shifts, namely Covid-19 and the U.S.-China trade war, has exposed the just-in-time inventory model's vulnerability to supply chain disruptions, creating turmoil for retailers and distributors.
AMD, a global semiconductor supplier for Sony, relies on third parties to manufacture its products, outsources certain supply-chain logistics functions to third parties, and is dependent upon third-party distributors. These multi-tier interdependencies introduce financial risks as well as supply chain risks for such a highly cyclical industry.
And given its foundry agreement with Taiwan Semiconductor Manufacturing Company Limited (TSMC), its proximity to China which is increasing share in the global semiconductor industry raises national security concerns since chips are also used in the military.
"Unfortunately, we've seen America's share of the semiconductor industry go from 37% in 1990 down to be about 9% by 2030. In the meantime, China has gone in the direct opposite direction, from about 12% of the market to 30% expected in 2030", said U.S. Senator Mark Warner (D-VA).
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According to the Semiconductor Industry Association, manufacturing a finished chip for a customer can take up to 26 weeks. In consequence, the push for reshoring semiconductor production capabilities has gained consideration. So far, actions being taken against the widespread semiconductor shortages have included bipartisan support for domestic chip manufacturing in a move to restore competitiveness to the U.S.
The Chips for America Act will promote domestic chip manufacturing and inject billions in financial incentives for constructing U.S. foundry facilities, where one factory could cost anywhere between $4 billion - $5 billion. Additionally, President Biden is seeking $37 billion in funding to promote domestic chip manufacturing.
When President Biden ordered a review on critical supply chains last month, which includes the semiconductor industry, an administration official said, "We really do see this as a resilient supply chain executive order, not a China executive order, though clearly one of the vulnerabilities we have in supply chains is the potential for strategic competitor nations to try to use control of supply chains against us."
Unfortunately, companies are forced to make "after-the-fact" decisions on building supply chain resilience as we advance into the future and glean lessons learned.
CFOs can collaborate with supply chain leaders to create a robust freight consolidation strategy to mitigate logistics disruptions, which will minimize transit time and introduce cost savings through price simplification, among other benefits. Another option may also include looking into air freight as a faster alternative to deliver products to retailers instead of seaborne transport. But note that this transportation mode is highly unsustainable in the long term as it cuts into profits due to higher incurred transportation costs.
Procuring the parts needed to produce the PS5 will be an ongoing challenge that may extend into the second half of 2021. In the meantime, PS5 fans are keeping a close eye on PS5 restock predictions in hopes of getting their hands on the hardware before it sells out again. Since the PS5 launch in November of last year, Sony reported a significant 40% YoY sales increase to 883.2 billion yen in the previous quarter, equivalent to about $8.1 billion in its Game and Network Services segment.
The Link LonkMarch 22, 2021 at 07:00AM
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