Tuesday, April 03, 2007


Sony's New Old $179 PSP

Here's the deal. The PSP Price has now been slashed. It went from 250, to 199, to 170. Now, why?

Let's deal in numbers. Let's limit it to 2005-2006 and to the battle between the DS Lite and PSP. Forget the fact that the GBA is still kicking ass with its walking stick.

Sony America managed to fight the 9 million DS Lites being sold with a whopping 7 million PSPs. Getting trounced by 2 million is okay. Remember, the PSP is 1.6:1 more expensive than the DS Lite. 7 million PSP units generates enough revenue as 12 million DS Lite units.

In Japan, the DS Lite is winning with by a 7:1 ratio but that's okay too. DS Lites sold 8 million copies.

The point is, in America, the PSP is just as popular as the DS Lite. There's no reason why the PSP needs a 30 dollar price decrease. Not in America or Europe anyways. Worldwide, the PSP as a hardware platform sells just as well as the DS Lite. And selling more hardware isn't going to solve the software attach ratio problem.

Main Point
A redesign is coming, obviously. That's the only reason for a price drop. Let's just use some induction here. If our theory is true, then the price cut on the PSP has to do with how many PSPs need to be cleared off the American shelves before the PSP redesign gets announced.

Narrow the time frame.
November and December are the months where sales are the greatest. Allowing October for announcements, it gives us a maximum range of 4 months for stock to be cleared. Seeing as how PSPs sell at around a 170K units on average, we have 680 or 700K units that retailers are confident that they can sell.

Now for the Prices Vs. Quantity asymptotic charts. The best way to do this is to look at the historic data on price points, similar or competitive products, and its own price decreases. Since the DS Lite is 70 Dollars cheaper than the PSP and sells 2 million more, you can assume that a 30 dollar decrease will follow the same ratio. That's about 850k units. But people don't purchase that way. People purchase using comparison. That's why the PSP was priced at 199 in the first place. Not only was it hi-tech, it was also priced the same as the iPod nano. Sony, if anything, is corporate and predictable. So keep that number weighted.

So 850k increase in PSP sales, 4 months of possible sell time.
212K per month projected increase.

Add them all up and you have 1.3 million PSP units in America that needs to be sold in the prime 4 months. There are 4(Target, Walmart, Best Buy, Circuit City) national sellers of electronics in America and it's not farfetched that they would each order a projected amount of 300K units, ie a month and a half's worth backstock.

This assumption is based on my assumption of Sony's need to push out a redesigned PSP before November so that it can have a solidly push out out PSN titles to a PSP 2.0 with a built-in hard drive. Everyone and their puppy knows how important this Christmas is.

Sony's stock right now is at 49$. If you look at the yahoo charts, it's nearing a scheduled nadir cusp. it will probably start steadly rising to 55 dollars, just like how God of War 2 gave the stock a boost. Personally, i think the PSP redesign will bump the price even higher.

You could wait two months, earn 2% on your securities, sell those and dump it into Sony, and sell it at the end of January for the truly unbrave.

Sony's not a good long term buy but it's still a pretty strong brand. But maybe you should buy now. Who knows how fast people'll catch on.

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