Sony and Nintendo warned Friday that soaring memory chip prices, fueled by booming demand from artificial intelligence data centers, are increasing costs and straining the gaming industry, reports Reuters.
Memory chip prices doubled in the first quarter from the previous quarter and are forecast to rise by as much as 63% in the current quarter as AI-driven demand tightens supply for smartphones, laptops, automobiles and gaming devices.
Major chipmakers including Samsung, SK Hynix and Micron have pledged billions of dollars to expand production capacity, but industry experts say it can take at least a year for new production lines to become operational.
Nintendo said higher component costs — particularly memory chips — along with tariffs are expected to add about 100 billion yen ($638 million) to expenses in the current financial year.
“The very fact that Nintendo felt compelled to act suggests the rise in memory costs has become severe enough that it could no longer be absorbed internally,” HSBC analyst Kazunori Ito said, referring to the company’s recent price increases.
“This decision likely reflects a sober assessment that waiting for market conditions to improve is not a viable option,” he added.
Nintendo President Shuntaro Furukawa said rising component costs and currency fluctuations were among the factors behind higher pricing for the upcoming Switch 2 console.
The Japanese-language version of the Switch 2 in Japan will rise by 10,000 yen to 59,980 yen, while the U.S. version will cost $499.99, up by $50.
Furukawa said the price increases are expected to keep profitability broadly unchanged from the previous financial year.
Sony also raised prices for its PlayStation 5 earlier this year, increasing the standard U.S. version by $100 to $649.99.
Analysts said Nintendo faces greater risks because the Switch 2 is still early in its lifecycle and many of its users are more price sensitive.
“Nintendo is now under more pressure than ever to release major first-party blockbuster games this fiscal year,” said Serkan Toto, founder of gaming consultancy Kantan Games.
Although Nintendo recently scored a hit with “Pokemon Pokopia,” analysts said its upcoming software lineup remains relatively thin, with future releases including “Star Fox.”
Nintendo also increased prices for older Switch models and online gaming services, while announcing that prices for its playing cards would shift from fixed retail pricing to open pricing set by retailers.
The company forecasts sales of 16.5 million Switch 2 units and 60 million software units this financial year, compared with 19.9 million console units sold last year.
Shares of both Sony and Nintendo have faced pressure in recent months amid investor concerns over AI-related supply disruptions and geopolitical tensions affecting global electronics supply chains.
Sony said it expects lower gaming sales but higher profits this financial year and plans to spend up to 500 billion yen on share buybacks.
Chief Executive Hiroki Totoki said Sony has secured enough memory supply for the current year but warned prices are likely to remain elevated next year.
The company is seeking savings in areas outside memory procurement, he added.
Sony said PS5 hardware sales will depend largely on how much memory it can obtain at “reasonable prices,” while hardware profitability is expected to remain similar to last year.
The company is also investing in its next-generation gaming platform as the PS5 enters its sixth year on the market.
Analysts expect Sony’s gaming business to receive a significant boost later this year from the launch of Take-Two Interactive’s highly anticipated “Grand Theft Auto VI,” scheduled for release in November.
“Sony’s bottom line stands to benefit significantly from the high-margin software sales and ecosystem engagement this launch should trigger,” Asymmetric Advisors analyst Amir Anvarzadeh said in a research note.
Bd-pratidin English/ Jisan
