As we all know their has been much anticipation regarding the up coming release of the new Xbox One and Playstation 4.
A company that is sure to benefit from the release of both consoles is AMD: Advanced Micro Devices.
Over the past few months I have read multiple articles regarding predictions of whether or not the Xbox One and Playstation 4 will be successful gaming consoles or epic fails.
Many investors purely look at the contents of this new generation of consoles and believe that these specs are not different enough from current generations to make the consumer want to go out and buy them.
I, a devoted gamer have my own opinion and statistics on why I believe that sales of these consoles will shock everyone. Browsing around the internet lately I have came across physical number's of the preorders sold for certain games coming out on Microsoft's Xbox One (NASDAQ:MSFT) and Sony's Playstation 4 (NYSE:SNE). These numbers do not prove the numbers of consoles preorderd but do give a suggestion to at least how many have been sold.
The information I am providing was pulled from Vgchartz.com. Vg's is a website that supplies preorder numbers for games that have been announced and are upcoming releases. Lets take a look at these numbers.
|Title of game:||Total # Preordered||Weekly Change|
|Battlefield 4 (PS4)||251,166||1,873|
|Call of Duty: Ghosts (PS4)||249,624||4,829|
|Call of Duty: Ghosts (Xbox One)||242,246||6,465|
|Killzone: Shadow Fall (PS4)||226,257||2,303|
|Assasin's Creed IV: Black Flag (PS4)||166,396||3,079|
|Battlefield 4 (Xbox One)||129,654||1,935|
What I have done is provided you, the reader with data that we can use to begin to draw conclusions on roughly how many next generation consoles have been preordered.
We will assume that since 251,166 copies of Battlefield (PS4)have been preordered that this means at least the same number of Playstation 4's have been preordered.
Their has been much speculation regarding the true revenue/margins that AMD will make off of these new consoles. To get an estimate I will use the above numbers to predict the $$$ AMD will make off the launch of the ps4 and Xbox one
In the first equation we will assume that AMD is making 50$'s in revenue and 10$'s margin per console for both the Xbox One and Playstation 4.
equation 1 PS4: 251,166 x 50.00's= Is a guaranteed $12,558,300 increase in revenue and a increase of $2,511,660 profit on the Playstation 4 alone. This is also assuming that the # of people who ordered battlefield 4 also preorder every other game. In reality I would estimate the true # of gamer preorders to be around 400,000 at this point with 10 weeks until launch. This 400,000 figure also does not include those resellers who purchased the console but did not preorder games. From having prior experience working the Kinect launch and Wii-U launch. I would predict that for every 1 console sold to a true customer that their is another one sold to a person who only intends to sell it.
If we predict a 100,000 ps4 consoles have been preordered by people who did not also order a game then we can create a new equation
For this equation well assume 500,000 ps4's have been preordered at this point.
so we get. 500,000 x $50 ='s $25,000,000 in q3 revenue increase and we get 500,000 x $10 ='s a 5,000,000 increase in margin. These numbers may seem low to some investors but note that these numbers come from assuming AMD is making low rev and margin per chip. It also does not factor in consoles sold to people who have not preordered. If the ps4 sells 2 regular consoles for every one preordred then we would be looking at numbers triple what I provided. Also consider what if AMD is actually making closer to $100's per chip and 30$'s in margin. I do agree this is a long shot however no one truly knows yet the amount of money AMD is making per chip.
Now lets look at the Xbox One assuming that reports are correct and the ps4 is still outpacing the Xbox in preorders. Well figure the Xbox one has done 330,000 preorders. 242,000 would be a appropriate number of guaranteed sold based off of the # Xbox One game preorders and an extra 90,000 suggested by factoring in resellers and those who did not preorder games
330,000 x 50 = 16,500,000$'s in revenue and 330,000 x 10 = 3,300,000 in margin
Lets also assume a 2:1 preorder/ sell ratio for the release of both consoles
1) PS4 = 25$ x 3 = $75 million in revenue increase and a $15 mil increase in margin
2) Xbox One = 16.5$ x 3 = 49.5 million in revenue increase as a worst case scenario for q3 AMD and a increase of 10 million in margin. Once again I am supplying low ball numbers as a worst case scenario.
Now that we have predicted total numbers for consoles. It is looking like a worst case scenario ($50 rev per chip, 10$ margin) would have AMD increase in revenue of $125 million and 25 million margin or a best case scenario ($100 rev per chip, $30 margin) or earning $250 million revenue in q3 and 75 million in margin from the combined sells of the PS4 and Xbox One.
Judging by the numbers provided above it does look like the next generation of consoles will succeed. Sales from console chips alone will not pull AMD out of hot water. They will however provide an extra cushion and give AMD the time to hopefully gains wins in the other areas such as servers and mobile chips.
Disclosure: I am long AMD.