Why is it So Complicated to Get Video Game Consoles?

The global COVID-19 pandemic helped bring about the strongest year ever for gaming investment in 2020, but now the coronavirus is affecting the availability of hardware.

Video games are one of the most popular modes of entertainment, and due to product shortages consumers are having to go on real-life quests to try to secure consoles and computer components.

The shortage can be traced back to a variety of factors that have been augmented by current purchasing behaviors, high demand for technological manufacturing components and COVID-19.

Here the Investing News Network (INN) takes a closer look at the issues affecting gamers across the world and how the current environment is impacting the gaming investment proposal.

Pandemic hinders Asian semiconductor output

The modern technology industry has placed high demand pressures on semiconductors, which are needed for the chips inside complex machines like consoles and computers.

The production of these components is predominantly done through a few players located in Asia. However, these companies have faced restrictions on output at their factories due to the pandemic.

The issue has highlighted how much companies across various industries depend on a select number of manufacturers when it comes to these technological parts. A report from 60 Minutes indicates that 75 percent of semiconductor production is based out of Asian countries.

“I think we have a couple of years until we catch up to this surging demand across every aspect of the business,” Pat Gelsinger, CEO of Intel (NASDAQ:INTC), told the TV program.

Gelsinger added that his company has spent time advocating for incentives that would encourage companies in the US to dedicate themselves to semiconductor production.

Taiwanese electronics manufacturer Foxconn Technology Group (TPE:2354) told the market back in April that it expects to see the shortage continue into the next year.

For his part, Mark Liu, chairman of Taiwan Semiconductor Manufacturing Company (TPE:2330), pointed to COVID-19 as the biggest factor causing delays in semiconductor production.

Gamers struggle to find consoles at established retailers

An investment expert monitoring the gaming market told INN that at this moment in time it’s still too nebulous to predict when the console and gaming computer shortage will end.

“It’s hard to get visibility on what the long-term solution is going to be,” John Patrick Lee, exchange-traded fund product manager at investment firm VanEck, previously explained. “But for the next year, for the foreseeable future, I think there’s still a ton of demand.”

In 2020, gaming spending reached unprecedented levels, indicating increasing interest from consumers. According to video game market researcher NPD Group, US$7.7 billion was spent between video game hardware, content and accessories that year, representing a 25 percent increase compared to 2019.

“It is extremely difficult to launch a console during a global pandemic, with Sony (NYSE:SONY) and Microsoft (NASDAQ:MSFT) facing a number of issues prior to launch,” Daniel Ahmad, a senior analyst at Niko Partners, told S&P Global Market Intelligence.

Ahmad added that ongoing “component shortages, higher than expected demand and a direct impact on global logistic” are all key factors contributing to the lack of availability for these exciting new products.

Will new hardware aid struggling consumers or add to chaos?

The video game console space is set to heat up again this year with brand new product launches from two gaming giants: Nintendo (OTC Pink:NTDOF,TSE:7974) and Valve.

First off, the Japanese game maker will launch a revamped version of its Switch console. The Nintendo Switch (OLED model) is set to hit shelves on October 8 with an increased price point of US$349.99.

The price difference is attributed to a bigger and improved screen. However, the console shares the same graphical capabilities as the base Switch model, which has started to see an increasing gap between its games and those of other modern consoles.

Some industry insiders still expect to see a more powerful Switch model some time in the near future.

Toward the end of the year in December, computer gaming operator Valve is expected to release the Steam Deck, a handheld device designed to play games from the online Steam store platform.

First special edition Xbox shows more consumer hunger

The appetite for new gaming hardware was tested yet again recently.

During the annual Gamescom Opening Night Live conference on August 25, Microsoft unveiled a new model of its Xbox Series X edition console for the 20 year anniversary of the popular Halo franchise.

The console will launch on November 15 and will include a copy of the upcoming Halo Infinite game. Microsoft will also debut a special edition of the premium Xbox Elite 2 controller with a custom paint job recreating the visual aesthetic of Master Chief, the hero of the Halo games.

The console quickly became a sore point of conversation online as the item went out of stock and was then found posted by scalpers almost immediately after it was made available on the Microsoft store.

Special console editions are an expected staple in the lifespan of gaming hardware, but the immediate scarcity of the new Xbox product is less typical and illustrates how much the market shortage is affecting new options for consumers.

Investor takeaway

The new age of console gaming arrived last year, but not all consumers have been able to enjoy the benefits of revamped machines — that is, not unless they are willing to hunt for resale postings or try to stay ahead of online releases with quick clicks.

The gaming industry has seen a tremendous boost in visibility and notoriety thanks to the stay-at-home orders affecting people across the world. Moving forward, experts think the space will continue plucking away at the momentum it’s gained recently, although it likely won’t recreate the numbers seen in 2020.

“We view that as an acceleration of trends that are already in place,” Lee previously told INN.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.