Pachter Speaks Out on Nintendo and Microsoft Strategy

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After meeting Michael Pachter at E3 during his interview with Hip Hop, I had a deeper respect for the guy. Doesn’t mean I have to agree with him, though. I think the increased Xbox 360 HD size is a good move considering the rate at which consumers are downloading media these days (e.g. movies, games). Read below to see what he has to say about the good and bad of the Nintendo and Microsoft strategy.

Wii Sales to Increase ‘Dramatically,’ Microsoft Strategy ‘Ill-Advised,’ says Pachter
Analyst Michael Pachter believes Wii sales in the U.S. could be around 1 million per month as Nintendo ships more units to America. He also thinks Microsoft’s focus on increasing hard drive space is “ill-advised.”
by James Brightman on Monday, August 11, 2008
The Wii has been the most successful console this generation by far, and it’s about to receive a boost in the U.S. according to Wedbush Morgan Securities analyst Michael Pachter.

“Wii sell-through should increase dramatically during the summer, due to higher manufacturing capacity coming online during the last month,” he said in his latest note. “Between April 2007 and March 2008, Nintendo manufactured 1.8 million Wiis per month, shipping an average of only 600,000 per month to the U.S. The company announced its intention to ship 25 million Wiis this fiscal year, implying its intent to increase monthly production to around 2.4 million in July. Because the U.S. has received only around 1/3 of total Wii production to date, instead of a more normal 40%, there has been a severe shortage of Wii supply here that has yet to let up. We saw the shortage relax somewhat in April, with 714,000 units sold through, 675,000 in May, and 667,000 in June. We expect the monthly figure to increase once the company is able to deploy its recent production increase to the U.S., and we expect monthly sell-through to increase by as many as 300,000 units per month, beginning in August.”

He continued, “In our view, U.S. supply last year should have been somewhere between 720,000 – 900,000 units per month (40 – 50% of total units produced), but Nintendo chose instead to divert a significant portion of its available supply to Europe since April 2007, as the weak dollar has made U.S. sales less profitable for the company than European sales. It appears that European console supply has caught up with demand, while at the same time, the U.S. dollar has appreciated slightly against the Yen, making shipments to the U.S. far more likely going forward. As a result, we think that the company likely shipped the U.S. a figure closer to its ‘fair share’ in the month of July, and we expect a further increase in Wii supply beginning in August.”

Pachter also weighed in on the recent “price cuts” from Microsoft and Sony, stating that the “moves were product upgrades rather than price cuts,” and he doesn’t expect any “meaningful sales increases” as a result.

Furthermore, despite strong rumors that Microsoft will institute a SKU-wide price cut this September, Pachter said “manufacturers have thus far signaled an intention to maintain pricing,” which he views as “a strategic error by Microsoft and Sony.”

He added, “In our view, each PS3 sold represents a lost opportunity for Microsoft, and each Xbox 360 sold represents a lost opportunity for Sony. We do not consider sales of the Wii to be a lost opportunity, as the Wii appears to us to have a bifurcated audience, with Wiis being purchased either by hardcore gamers who will ultimately also buy either a PS3 or a 360, or with Wii purchasers being casual gamers who have no intention of buying a second console in the home. We think that Sony will gain a competitive advantage as the installed base of HDTVs increases, given the Blu-ray functionality of the PS3, and think that Microsoft’s attempt to gain an advantage by increasing the size of its hard drive is ill-advised. At the end of the day, there are more consumers on the sidelines who will be influenced by pricing than by features and functionality, and we think that Microsoft should seize the opportunity to again gain a sales lead over Sony by cutting price below $300 permanently.”

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