Based upon channel checks, 78% of the 50 retailers the firm spoke to reported PS3 hardware in-stock, while 70% stated inventory was lasting at least a week of sales. The PS3's price point and lack of compelling software titles were cited as the most common reason units were remaining on retail shelves. These findings run contrary to their (and consensus) thoughts about PS3 demand six months ago, when it was widely believed that the first few months of PS3 sales would easily be satisfied from pent-up demand. In contrast, Nintendo's Wii hardware is experiencing strong demand, but lower- than-expected supply.
Bottom line, the key risk is that FY08 software sales are at risk unless PS3 demand picks up (logically the result of a pricecut) or the publishers make meaningful inroads on the Wii platform. Firm estimates that PS3 sales will account for approximately 21% of their publisher's total FY08 sales. On the margin, they view Electronic Arts (NASDAQ:ERTS) as the most exposed to soft PS3 sales.
Notablecalls: I think the PS3 concerns are somewhat overblown. After all, it's 4 weeks after Christmas. You really think there won't be price cuts? Nevertheless, the wording of the call is strong enough to generate some weakness in ERTS.