Sony and Nintendo face challenges due to the rising costs of memory, as the surge in AI demand limits availability

Nintendo and Sony both highlighted the effects of rising memory prices on their gaming operations on Friday, as the artificial intelligence surge limits chip availability and exacerbates disruptions throughout the tech industry.

In the first quarter, memory chip prices experienced a doubling compared to the previous quarter, with projections indicating a potential increase of up to 63% in the current quarter. AI data centers’ demand has caused this surge, impacting the supply for smartphones, laptops, and automobiles.

Top producers such as Samsung, SK Hynix, and Micron have committed to increasing output with substantial investments. However, experts indicate that it requires a minimum of a year for a new production line to become operational. Nintendo, known for its “Super Mario” franchise, has stated that rising component costs, especially for memory, along with the effects of tariffs, are anticipated to contribute approximately 100 billion yen ($638 million) to expenses in the current financial year.

President Shuntaro Furukawa stated that the increased component costs, along with other factors such as exchange rates, influenced Nintendo’s choice to raise the prices of its Switch 2.

The cost of the Japanese language Switch 2 Japan model will increase by 10,000 yen, bringing the total to 59,980 yen. In the U.S., the gaming device will be priced at $499.99, which is $50 more than before.

Furukawa stated during an earnings briefing that, despite the price increases, profitability is expected to remain approximately the same as it was in the last financial year.

Sony announced in March that it would raise the prices of the PS5, with the standard version of its gaming device increasing by $100 to $649.99 in the U.S.

NINTENDO USERS ARE VIEWED AS ESPECIALLY PRICE-SENSITIVE.

According to Serkan Toto, founder of the Kantan Games consultancy, Nintendo faces risks with price increases as the Switch 2 is still in its early stages and its casual user base is notably sensitive to price changes. Toto emphasized that “Nintendo is now under more pressure than ever to release more first-party blockbusters this fiscal year” to enhance demand for the system.

Despite recently achieving success with “Pokemon Pokopia,” the firm’s games pipeline appears limited, with upcoming titles featuring “Star Fox.”

Nintendo has increased the prices of its older Switch and online gaming services and announced that its playing cards will transition from a fixed price to an open price determined by retailers.

The company anticipates selling 16.5 million Switch 2 units this year, a decrease from 19.9 million units last year, along with 60 million software units.

Sony’s and Nintendo’s shares have faced challenges in recent months as investors express concerns regarding the effects of supply chain disruptions caused by the AI boom and the conflict in Iran on the profit margins of electronic manufacturers.

Sony plans to allocate up to 500 billion yen for share buybacks and has indicated a forecast of lower sales but increased profits in its gaming division for this financial year.

Sony has obtained a memory supply for this financial year; however, prices are anticipated to remain elevated next year, CEO Hiroki Totoki stated during an earnings briefing.

The company is exploring options to lower expenses beyond memory, he stated.

Sales of PS5 hardware depend on the quantity of memory that Sony can obtain at “reasonable prices,” with hardware profitability anticipated to be comparable to the previous year.

As the PS5 enters its sixth year on the market, the profit forecast includes considerations for investment in Sony’s next-generation platform.

Sony is anticipated to gain significant advantages from the upcoming launch of Take-Two Interactive’s postponed “Grand Theft Auto VI,” set to be released in November.

Amir Anvarzadeh of Asymmetric Advisors noted that Sony’s bottom line is poised to gain considerably from the high-margin software sales and ecosystem engagement anticipated from this launch.