Microsoft and Sony Appear to Have Big Expectations for Their Next-Gen Consoles

Sony has reportedly hiked its PlayStation 5 orders, and Microsoft has discontinued two of its three Xbox One models amid reports that it will launch two new consoles.
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Microsoft  (MSFT) - Get Report and Sony  (SNE) - Get Report both appear to be prepping fairly big production ramps for their next-gen consoles ahead of their expected holiday-season launches.

This week, both Bloomberg and Japan’s Nikkei reported that Sony has hiked its 2020 production plans for the PlayStation 5, thanks to elevated gaming activity due to COVID-19. Bloomberg reported that Sony now wants 10 million PS5 units to be made this year, up from a prior goal of 5-to-6 million. Along similar lines, the Nikkei reported that Sony has upped its 2020 PS5 production orders by 50% to around 9 million.

Separately, Microsoft announced that it’s ending production for two of its three Xbox One models -- the Xbox One X and the Xbox One S All-Digital Edition, which lacks an optical drive -- as it ramps production for the Xbox Series X. The standard Xbox One S, which typically sells for $299, will remain in production.

Microsoft’s move follows a slew of reports stating that (in addition to the Series X) the company will sell a low-cost, next-gen Xbox codenamed Lockhart. In June, Eurogamer reported that Lockhart, which is expected to lack an optical drive and contain a less powerful GPU than the Series X, will be unveiled in August.

The news comes as research firm NPD estimates that U.S. video game hardware spending rose 25% annually during the first half of 2020 to $1.6 billion. With the Xbox One and Sony’s PlayStation 4 now more than six years old, a large portion of the spending went towards the Nintendo Switch  (NTDOY) , which remains sold out at major retailers and is selling for healthy premiums to its $299 MSRP on eBay.

Though the Switch is more targeted towards children and casual gamers than Microsoft and Sony’s consoles, its recent demand surge, together with the strong demand Nvidia  (NVDA) - Get Report is currently seeing for its PC gaming GPUs and the sales growth that many large game publishers are reporting, bodes well for the initial reception Microsoft and Sony’s next-gen consoles will respectively see with their large Xbox One and PS4 installed bases.

And that in turn would be a positive for Xbox Series X and PS5 chip/component suppliers such as AMD  (AMD) - Get Report, Micron  (MU) - Get Report and Western Digital  (WDC) - Get Report. Both consoles will contain powerful AMD processors featuring 8-core CPUs and GPUs delivering more than 10 teraflops of processing power. They’ll also each pack 16GB of GDDR6 graphics memory and -- in a move that has major implications for how games will be developed -- rely on solid-state drives (SSDs) rather than hard drives for storage.

As Microsoft gets set to launch the Series X (and likely, a cheaper next-gen console), the company is also set to formally launch its Project xCloud gaming service, which streams games to consumers via Microsoft’s Azure data centers, is currently in preview mode. Earlier this week, Microsoft said that xCloud will officially launch in September and be included with Xbox Game Pass Ultimate subscriptions -- they currently cost $14.99 per month and provide access to both the Xbox Live service and the Xbox Game Pass game-download service.

More than 100 Xbox Game Pass titles will initially be supported by xCloud at launch time. However, though Microsoft says it wants xCloud to eventually be available on “every screen that someone can stream games to,” for now the service only runs on Android phones and tablets.