Sony stated in an earnings call that PS5 shipments totaled only 11.5 million units in the last fiscal year (2Q21 to 1Q22), missing the target of 14.8 million units. Increasing PS5 game console production will be the company’s main task for now and sales are expected to rise to 18 million units this fiscal year. In addition, Sony also stated that it will strengthen live broadcast services and extend game services to other devices, as well as step up its VR business.
PS5 sales will continue to grow in 2022 but market instability remains
Although Sony had high expectations going into the launch of the PS5 and market reception was good, the PS5’s final sales volume was stifled by production hamstrung as a result of component shortages. Therefore, Sony specifically mentioned in the Business Segment Briefings, comparing US retailer events sold PS4 to the PS5, the PS4 sold an average of 6 units per minute, while the PS5 now sells approximately 1,000 units per minute, demonstrating the strong market demand for PS5.
At the beginning of the PS5 release, there were reports of an insufficient supply of components. When the PS5 was released at the end of 2020, it had been in production for several months and accumulated a certain amount of inventory. Even if production capacity was in short supply when the console was released, Sony could still meet some market demand in the first year with its inventory and then increase production capacity in 2021 to make up the difference. However, in 2021, semiconductor production capacity was also in short supply. Not only game console products, but numerous other products experienced a shortage of components. Naturally, Sony was unable to further increase the supply of PS5 consoles, resulting in PS5 sales coming in lower than originally expected. Sales even declined in 1Q22. As the imbalance between supply and demand of semiconductors gradually eases in 2022, Sony predicts that PS5 production will begin to increase to fulfill market demand and announced a sales target for this fiscal year of 18 million units.
Even so, there remain many uncertainties in 2022. First of all, although pandemic lockdowns in China have yet to directly affect the assembly and production of game consoles in Shandong, the risk of potential fallout still exists given the uncertainty of pandemic development. Secondly, demand from the overall consumer market may be exhausted in 2022. This is due to unfavorable factors such as inflation, wars, pandemics, and rising energy prices. Disposable income in 2022 is forecast to shrink as a result and force consumers to give up some non-essentials or delay purchases. So this may cause consumers to delay replacing their current console with a PS5. A combination of the original dearth of PS5 supply and the impact of the scalper market seriously depleted the stock of products on the market. Some consumers who were eager to enjoy new console games may have switched over to buying an Xbox Series X/S first which may contribute to PS5’s 2022 annual sales volume falling short of Sony’s estimate. TrendForce expects that volume will only reach 14.34 million units. Even if this forecast references the range of Sony’s fiscal year (2Q22 to 1Q23), estimated sales volume will only increase to 16 million units.
According to TrendForce research, corporate demand for digital transformation including artificial intelligence and high-performance computing has accelerated in recent years, which has led to increasing adoption of cloud computing. In order to improve service flexibility, the world’s major cloud service providers have gradually introduced ARM-based servers. The penetration rate of ARM architecture in data center servers is expected to reach 22% by 2025.
In the past few years, ARM architecture processors have matured in the fields of mobile terminals and Internet of Things but progress in the server field has been relatively slow. However, companies have diversified cloud workloads in recent years and the market has begun to pay attention to the benefits ARM architecture processing can provide to data centers. TrendForce believes that ARM-based processors have three major advantages. First, they can support diverse and rapidly changing workloads and are more scalability and cost-effective. Second, ARM-based processors provide higher customization for different niche markets with a more flexible ecosystem. Third, physical footprint is relatively small which meets the needs of today’s micro data centers.
Influenced by geopolitics and the strengthening of data sovereignty in various countries, major cloud service providers and telecom operators are actively developing micro data centers which will further drive the penetration of ARM-based processors. At the same time, from the perspective of cloud service providers currently adopting ARM-based processors, Graviton, led by AWS, has the largest market scale and began encroaching gradually into the market in 2021. TrendForce also observed that AWS’s deployment of ARM-based processors in 2021 reached 15% of overall server deployment and will exceed 20% in 2022. This forces other major cloud service providers to keep up by initiating their own projects at various foundries. If testing is successful, these projects are expected to start mass introduction in 2025.
In addition, according to the Neoverse Platform plan previously released by ARM, its Platform Roadmap will also be one of the key drivers of penetration. This product line is set up to target ultra-large-scale data centers and edge computing infrastructure. However, it is worth mentioning, since x86 is still mainstream in the market and ARM-based server CPU suppliers only maintain small-batch production orders at this stage and primarily focus on ultra-large-scale data centers, introduction of ARM-based servers into enterprise data centers will be slow going. Thus, TrendForce believes that it will still be difficult for ARM-based servers to compete with x86-based servers before 2025.
AR/VR device shipments revised up to 14.19 million units in 2022, with an annual growth rate of 43.9%, according to TrendForce research. Growth momentum will come from increased demand for remote interactivity stemming from the pandemic, as well as Oculus Quest 2’s price reduction strategy. Microsoft HoloLens 2 and Oculus Quest 2 are first in market share for AR and VR, respectively.
According to TrendForce, the topic of the Metaverse has driven brands to actively plan for and stimulate product shipment performance. However, the AR/VR device market has yet to experienced explosive growth due to two factors: component shortages and the difficulty of developing new technologies. In addition, cosmetic and size considerations have made the more optically and technically difficult Pancake design the first choice for new high-end products. Furthermore, various embedded tracking feedback technologies key to enhancing the user’s immersive experience such as eye tracking and 6DoF further affect the development progress of a new product as a whole. Since there are no new foreboding products on the horizon, TrendForce believes, no other branded products have a chance at supplanting the current mainstream status of Oculus or Microsoft until at least 2023.
The Oculus Quest 2, which costs between US$200 and US$400, is currently the most popular AR/VR device in the consumer market. TrendForce expects Oculus to launch an advanced version of the Quest product within two years, reaching a hardware performance equivalent of US$700 or down to a retail price of US$500 with discounts. This product is expected to expand the size of the high-end consumer AR/VR market. The commercial market is dominated by the HoloLens 2 which costs more than US$1,000 and upwards of US$3,500. Since the commercial market places more emphasis on the benefits of hardware and software integration, manufacturers that dominate commercial systems, software, and platforms have the advantage. Thus, Apple has become another focus in the AR/VR device market.
Strong shipments of Oculus and Microsoft products will likely force Apple to release relevant products to join the competition this year. However, TrendForce states, considering hardware performance requirements and gross profit margins, Apple will likely target the commercial market and adopt the same pricing strategy as HoloLens, hardware priced in the thousands of dollars and a monthly subscription-based software solution. Overall, TrendForce believes that the launch of new products this year by Apple, Meta, and Sony may be delayed and will not add significant growth to the overall AR/VR market for the time being.
Microsoft announced in early November that it will release the preview of Mesh for Microsoft Teams (henceforth referred to as simply “Mesh”) in 1H22 as a chat and collaborative platform for the metaverse. By providing a virtual meeting space, in which Teams users can conduct meetings, chat, work collaboratively, and share documents, Mesh is set to become an entrance to the metaverse.
Community interactions will serve as a starting point for metaverse development
Microsoft first unveiled Microsoft Mesh during its Ignite 2021 event in March. This platform supports applications including HoloLens Mesh and Altspace VR, with more Microsoft Teams services to be released in the future. By announcing ahead of time that the preview version of Mesh will be released in 2022, Microsoft is hoping to leverage the recent emergence of topics related to the metaverse in order to increase its customers’ engagement with the new functionalities of Mesh. Hence, the company is positioning Mesh as an entrance into the metaverse by first attracting users through functions such as teleconferencing, collaboration, and chat. Microsoft will then gradually add to the number of applications and services in the virtual reality, thereby eventually constructing a complete virtual world.
Judging from the current progress of development, TrendForce believes that social communities, teleconferencing, and virtual meetings will become AR/VR applications most attractive to consumers. That is also why companies currently developing AR/VR solutions regard these applications as the starting point of metaverse development. These applications’ trending importance can primarily be attributed to the two reasons of demand and supply. Regarding the demand side, not only has the emergence of the COVID-19 pandemic brought about significant growths in teleconferencing and remote interaction usages, but there has also been a gradual change in how people interact in internet-based communities. More specifically, this change refers to a shift in interactions from texts, images, and videos to virtual avatars. As a result, the consumer market is expected to have a relatively high acceptance for AR/VR-driven community interactions and teleconferences. Regarding the supply side, on the other hand, service providers that operate social media and teleconference platforms drastically differ from the typical hardware brands in terms of product strategy, since these providers generally aim to first create a massive user base rather than deriving profits from a single product. As such, these providers are comparatively more willing to invest massive resources into expanding their presence in the market during the initial phase even though doing so may potentially incur financial losses.
R&D and release of device hardware will become the most significant challenge for platform service providers
For Microsoft, Mesh represents a starting point, not only towards the development of the metaverse, but also one that requires investment in more areas, since the metaverse requires the realization of a virtual world that is more immersive and lifelike. Apart from Microsoft’s existing competencies in cloud services and OS software, the company still needs to achieve a sense of realism in the virtual avatars and interactions that it creates, and these creations need to reflect changes made by the user. For instance, the mouth and facial expressions of virtual avatars need to be able to instantly adapt as their users speak, and this process involves not only software adjustments, but also the integration of sensors and other hardware devices. As long as hardware brands require that their individual products remain profitable, Microsoft will find it difficult to hand over the responsibility of hardware-related technological R&D and product releases to the hardware brands. Unless Microsoft is willing to provide sufficiently high subsidies and absorb all financial losses, it will inevitably release its self-designed consumer AR/VR devices – for the same reason that Meta (also known as Facebook) acquired Oculus, and ByteDance acquired Pico. On the other hand, crossing over to the hardware market represents entering an industry that is yet to mature and that requires investment into multiple technologies. Platform service providers will therefore need to invest more resources into hardware development, and this remains one of the challenges Microsoft faces after entering the metaverse.
Owing to persistently strong demand for notebook panels and increased supply of such upstream components as ICs and TCONs, quarterly notebook panel shipment reached yet another historical high in 3Q21, with 72.27 million pcs shipped, representing an increase of 7.1% QoQ, according to TrendForce’s latest investigations.
TrendForce indicates that the proliferation of the stay-at-home economy resulted in record-setting performances from the notebook panel market, in which quarterly shipment reached historical highs for three quarters consecutively across the 1Q21-3Q21 period. Nevertheless, market demand for panels has shown partial signs of weakening. Demand remains strong for commercial notebooks but has begun plummeting for consumer notebooks and Chromebooks. Alongside this drop in Chromebook demand, 11.6-inch panels, which are the mainstream size of Chromebook displays, have also dropped in terms of shipment volumes, reaching only 10.88 million pcs shipped in 3Q21, a 28.3% QoQ decline. Quarterly shipment of Chromebook panels is expected to undergo a further decrease in 4Q21. In addition, given the aforementioned strong demand for commercial notebooks, panel suppliers have quickly transitioned their focus towards 14-inch and 15.6-inch panels in response, and the combined quarterly shipment of both of these sizes reached 46.45 million pcs in 3Q21, a 20.2% QoQ increase. The bullish performance of these sizes of notebook panels thereby became the key reason behind the historical high in notebook panel shipment in 3Q21.
Due to panel suppliers’ swift response to changes in the market, notebook panel shipment for 2H21 is not expected to be overly impacted by the weakening demand for Chromebooks and consumer notebooks. For now, TrendForce projects notebook panel shipment for 4Q21 to reach 71.15 million pcs, while shipment for the entire 2021 is expected to reach 278.1 million pcs, a 23.2% YoY increase. Looking ahead to 2022 and regarding the supply side of the panel market, most panel suppliers will be aggressive in their shipment plans for notebook panels due to the massive growth in notebook panel shipment across the 2020-2021 period. As such, panel suppliers are planning to ship about 330 million pcs of notebook panels in 2022. However, if a corresponding demand for notebooks fails to emerge next year, the notebook panel market may enter into an oversupply situation, thereby placing downward pressure on panel prices. Regarding the demand side of the panel market, demand for Chromebooks and consumer notebooks will likely continue to slow down next year, but this slowdown will be accompanied by a corresponding growth in commercial notebook demand due to the persistent growth of the overall economy, along with the global digital transformation also taking place. Taking these factors into account, TrendForce expects annual notebook panel shipment for 2022 to reach 279 million pcs, representing a slight growth of 0.3% YoY.
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