Sony's PS4 Looks To Take Market Share From The Xbox

| About: Sony Corporation (SNE)

On February 20th, Sony (NYSE:SNE) finally announced the release of its eighth generation gaming console, the Playstation 4. This has been the longest console cycle in the history of home video gaming. The last time new consoles were released was around seven years ago. The new console from Nintendo (OTCPK:NTDOY), the Wii U, was released last November to somewhat lackluster sales and was not embraced by gamers. Most 'core' gamers were anxiously awaiting news from Sony and an announcement from Microsoft (NASDAQ:MSFT) on the Xbox 720. Now it looks like Sony may get its eighth generation console on the market before Microsoft, a complete reversal from the last time when the Xbox 360 sold 10 million units before the Playstation 3 was released.

The new PS4 has many features such as a stronger processor, faster speeds and some gadgets that only die hard tech geeks care about. However, there are several components which will have industry-wide implications. One of the rumors surrounding the next generation of Playstation games was once it was played on a console, it could only be used with that specific console. This would make used games obsolete and companies like GameStop (NYSE:GME) would be out of business. As it turns out, used games will work on the Playstation 4. This is a contradiction to the patent application which Sony filed on January 3rd to put RFID chips in video games to prevent use on different consoles.

The new Playstation will have a special port for the Playstation Eye, a device that captures movement and is similar to the Xbox Kinect. Up until now, Sony has been the most sedentary of the three main consoles with very few games being made for the Playstation eye and most users preferring to use hand held controllers. On that note, the new controller, the Dualshock 4, will also be motion sensitive. This is similar to the Nintendo Wii's controller, enabling the user to move through gaming environments just by moving the controller around. The focus on these features is clearly Sony targeting its competitors' previously unique selling points in an effort to gain more market share.

Now speculation is running rampant around when Microsoft will officially announce its new Xbox. Last spring some information was leaked that appeared to be an internal document showcasing the various features for an 'Xbox 720', however, none of the specifications or a release date have been verified by Microsoft. In the Microsoft document, the company expects a 2013 launch and a price point of $299 per Xbox. According to the document, Microsoft also expects the PS4 to be priced at $399. In addition to the new Kinect V2, the new 720 will finally have Blue-Ray capability; a feature that was surprisingly absent from previous models.

The new Nintendo Wii U was released in North America last November 18th with a faster processor, new controller and dual screen support. Nintendo also increased its online presence with the new revamped Nintendo Network/Miiverse, an online gaming community similar to the Playstation Network or Xbox Live. According to Nintendo it had sold 3.06 million units as of the end of last year. Those numbers were well below expectations and the company has lowered its 2013 sales forecasts by 17% from 5.5 million units, down to 4 million.

The rumor is that Sony expects to ship 16 million Playstation 4s in 2013. That would be an astronomical figure and instead it probably means that Sony expects to ship 16 million units over the first 12 months of release. It becomes more ambitious when you consider some of the problems Sony had with the release of the Playstation 3. First in 2006, Sony's intention was to ship 400,000 units to North America. Statements made later indicate the company only shipped around 200,000, while it estimated that there had been demand for 1 million units. The second major problem with the Playstation 3's launch was that the cost to produce each unit turned out to be nearly double the price they were selling for. Sony remedied the problem by removing one of the more expensive components. After the launch, hardware costs went down, allowing the company to eventually turn a profit.

If the company has learned from the mistakes it made last time, this could be a huge year for Sony stock. The company has already announced its console before Microsoft announced its new Xbox (which has been the best selling console so far), and Sony stock is already up nearly 30% since early January. The anticipation leading up to the release may be enough to put the stock into the high 20 dollars a share. Sony stock is a definite buy and could double over the next 18 months.

Nintendo's stock is a completely different story. Right after the launch of the Wii U, Nintendo's ADRs traded around 1$6.50 per share and have steadily declined since. The poor stock performance was due to a combination of dismal Wii U sales and a terrible fourth quarter for video game sales overall. The announcement of the PS4 and Xbox will continue to put pressure on Nintendo's stock and I don't see any reason to hold NTDOY long at this time.

Microsoft stock has also come down a little, in part due to the Surface not becoming the blockbuster product the company and investors hoped it would. Still, when the Xbox 720 does get released, it will be very popular, even if it is second to the PS4. What has also been somewhat overshadowed by the Surface is the release of Windows 8, which is powering not just PCs, but tablets as well. Something that previous versions of Windows couldn't. Microsoft is a strong company with a good dividend and should continue to be a valuable long-term holding.

Other stocks that could benefit from the PS4 announcement are companies like GameStop (GME). Many analysts and investors believed the used video game business was going to be killed by the new consoles and it looks like that is not the case. GameStop stock has recently been a buy-on-the-rumor, sell-on-the-news investment. I think it is a solid hold until the release of the PS4 and Xbox and then the stock should be re-evaluated. In fact, all electronics retailers and video game stocks should get a bump from the new console releases.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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