Recent rumors have indicated rising expectations in the gaming industry. Sony (NYSE: NYSE:) may launch the PS5 Pro, an upgraded model of the PS5. In a note on Friday, Citi analysts discussed what the launch of the PS5 Pro could mean for Sony’s financial performance.
“While we believe the company is making regular design adjustments in order to reduce costs, we have not made any specific assumptions regarding the launch of the PS5 Pro,” the analysts said.
“If the PS5 Pro is launched, we believe it could improve margins and boost earnings to some extent, although this depends on the cost of goods sold (CoGS) structure,” they added.
According to Citigroup, there are several factors supporting the potential launch of the PS5 Pro.
First, the timing of the PS5 Pro’s potential launch seems right, especially considering the challenges that the PS5’s initial launch faced, such as disruptions caused by the coronavirus and chip shortages. These factors delayed the PS5’s launch to market by between a year and two compared to its predecessor, the PS4.
Releasing a Pro model now, five years after the original PS5 launched, is in line with the natural product cycle, especially since Sony launched the PS4 Pro three years after the PS4 launched.
Furthermore, Sony’s decision to participate in the Tokyo Game Show in 2024, after a five-year absence, suggests that the company may be planning a major announcement. The introduction of competing consoles could also prompt Sony to respond with an upgraded PS5 model.
Citi analysts believe the PS5 Pro could also address profitability concerns, as both the original PS5 and its Slim variant have less favorable CoGS structures compared to previous PlayStation generations.
Therefore, the Japanese tech giant “may decide it’s worth launching a more expensive Pro model to improve console margins, even if it means sacrificing sales volume,” the analysts noted.
However, there are notable risks associated with the launch of the PS5 Pro.
Sony’s president has previously stated that there are no plans to change the core semiconductor processes for the PS5. While some tweaks to the semiconductor and system design are possible, these changes are unlikely to result in significant cost savings.
Additionally, the introduction of a more expensive model could slow adoption rates due to lower sales volumes. The recent PS5 price increases in Japan also contradict typical inventory reduction strategies that precede a new product launch.
Historically, announcements of hardware upgrades have had a positive impact on Sony’s stock price.
“In our view, the PS5 Pro announcement could be a welcome one,” the analysts noted.
“If announced, we will focus on improvements to CoGS architecture, performance, and the resulting opportunities to expand gaming software.”