There have been recent rumors circulating in the gaming industry suggesting that Sony (NYSE: NYSE:) might be gearing up to release a PS5 Pro, an upgraded version of the popular PS5 model. Analysts from Citi discussed the potential implications of a PS5 Pro launch on Sony’s financial performance in a note released on Friday.
While the analysts acknowledged that Sony regularly makes design modifications to reduce costs, they did not factor in any specific assumptions about a potential PS5 Pro launch. However, they speculated that the introduction of a PS5 Pro could potentially lead to improved margins and increased earnings, depending on the Cost of Goods Sold (CoGS) structure.
According to Citi, several factors support the likelihood of a PS5 Pro release. The timing for a potential PS5 Pro launch seems favorable, especially considering the challenges faced during the initial rollout of the PS5, such as disruptions caused by COVID-19 and chip shortages. Releasing a Pro model five years after the original PS5 launch aligns with the natural product cycle, similar to the three-year gap between the PS4 and PS4 Pro.
Furthermore, Sony’s participation in the Tokyo Game Show in 2024, after a five-year absence, hints at a possible significant announcement. The presence of rival consoles in the market may also prompt Sony to introduce an upgraded PS5 model to stay competitive.
The analysts at Citi believe that the PS5 Pro could potentially address profitability concerns, as the current PS5 models have less favorable CoGS structures compared to previous PlayStation generations. Sony may see value in launching a high-priced Pro model to improve margins, even if it means sacrificing sales volume.
However, there are risks associated with launching a PS5 Pro. Sony’s president has indicated that there are no plans to make significant changes to the core semiconductor processes of the PS5, which could limit cost reductions. Additionally, introducing a more expensive model could slow adoption rates and contradict typical inventory reduction strategies.
Historically, announcements of console upgrades have had a positive impact on Sony’s share price. If the PS5 Pro is announced, analysts will be focusing on improvements in the CoGS structure and performance, as well as the potential opportunities for expanding game software.