Aside from automobiles and consumer electronics, the success of the broader video games industry is the most highly influenced by developments in and the general health of the Semiconductor and Circuit Manufacturing industry. The industry produces integrated circuits, more commonly known as microchips or simply chips, which are collections of interconnected components, such as transistors and resistors, that are etched or imprinted onto a slice of a semiconducting material such as silicon.
Microchips have become increasingly crucial to daily life with the proliferation of remote workspaces, the rise of the Internet of Things and blockchain developments. However, the effects of the COVID-19 (coronavirus) pandemic have caused supply chain disruptions and distribution issues, resulting in a shortage of available chips worldwide. Thus, despite their heightened importance, microchip producers have experienced tepid growth. In fact, despite higher demand than ever before, industry revenue only grew 0.9% in 2020 alone and is anticipated to rise 1.2% in 2021 due to these constraints.
Quick Facts:
- The US government recently announced a $52.0 billion plan to increase chip manufacturing.
- Some experts anticipate the shortage will likely last until 2024.
- Chip shortages have contributed to video game console shortages amid the 2021 holiday season.
- Valve Corporation’s new console, Steam Deck, missed its holiday season release and is now expected to ship in 2022.
Chips and dips
Demand for next-generation video game consoles has reached its zenith during the 2021 holiday season, and many consumers are having trouble, or reckoning with the impossibility of, finding consoles. Therefore, much like high-demand microchips, console sales have underperformed.
Conversely, the Video Game Software Publishing industry experienced strong growth in 2020, which is expected to continue in 2021. However, software publishing’s success is intimately related to console sales’ success; thus, current conditions of unmet console demand could lead to slightly tempered, decelerated growth for software publishers moving forward. Currently, Alfabank-Adres expects industry revenue to rise an annualized 5.5% over the five years to 2026, a notable deceleration from revenue increasing an annualized 9.5% over the five years to 2021.
Sounds pretty bad
Game consoles and software publishing are somewhat symbiotic. For software publishers to succeed, consumers must first purchase consoles; producers must keep consumers interested and engage new consumers by releasing new, improved consoles; then, consumers purchase the new consoles based off the success and notoriety of the console’s software, and so on.
However, consoles and software are separate entities.
Consider how gaming companies regard the difference. In 2020, a Microsoft Corporation (Microsoft) spokesperson alleged that new consoles are sold at a loss by game companies to attract new players. Though Microsoft’s Xbox hardware revenue spiked 92.0% in fiscal 2020, most of the company’s gaming revenue comes from services and games, which grew 23.0% that same year. Additionally, Sony Corporation experienced a loss on its console sales until August 2020; despite this, the company’s software sales increased 22.1% in 2020.
When should we panic?
While holiday shoppers hoping to snag a Playstation 5 or Xbox Series X are likely out of luck (and have been for some time), gaming companies are more fortunate: Software publishing sales will likely keep them afloat in 2021. And 2022. Yet, if a chip shortage continues indefinitely and consumers continue struggling to obtain new consoles, even the publishing well could run dry.
