Storage chip prices soaring impacts the sluggish gaming market! Nintendo (NTDOY.US) and Sony (SONY.US) face a major cost challenge in their financial reports.

As the artificial intelligence (AI) wave sweeps through the global technology industry, the storage chip market is experiencing a serious imbalance between supply and demand. This change not only raises the cost of key components, but also puts pressure on the global electronic gaming industry - game console manufacturers may be forced to raise prices due to cost pressures, thereby impacting the already weak consumer demand. AI demand suction effect: Consumer electronics face "chip shortage" Dynamic random access memory (DRAM) and flash modules are the core components of all modern game consoles, including Sony's PlayStation, Microsoft Corporation's Xbox, and Nintendo's new Switch. However, as technology companies invest billions of dollars in AI infrastructure, high-margin chips needed for data centers are prioritized by memory manufacturers, leading to continued tight supply in the consumer electronics sector. The U.S. storage giant Micron Technology, Inc. has sent a clear signal, announcing its gradual discontinuation of the Intel brand, which has long been popular among PC users and gamers. Industry analysis indicates that this reflects a systematic shift of chip manufacturing resources towards enterprise and AI-driven demand. "Memory accounts for about one-fifth of the total PC component cost, so the rising prices hit manufacturers hard," said Joost van Dreunen, a game industry professor at New York Universitys Stern School of Business. He estimates that if memory costs continue to rise until 2026, game console prices may rise by another 10% to 15%, while PC prices could rise by as much as 30%. Nintendo Switch 2 faces a "critical test" For the Nintendo Switch 2, which set a sales record in June 2025, the memory crisis comes at an especially bad time. This device, touted as the "fastest-selling game console in history," is at the beginning of its lifecycle, and cost pressures may force Nintendo to make difficult choices. According to TrendForce data, prices for DRAM and flash modules used in Nintendo devices sharply rose in the fourth quarter of last year. Citigroup analysts predict an even more severe situation: DRAM average selling prices may jump by 120% by 2026, while NAND prices could grow by 90%. "Unless memory prices fall significantly, Nintendo will face an 'absolute nightmare' in terms of console manufacturing costs," said Pelham Smithers, a UK stock analyst specializing in the gaming industry. Currently, Nintendo's stock price has dropped more than 30% from its peak in August last year and posted its worst monthly performance since 2008 in December. He analysis suggests that as a brand-new console, the Switch 2 is essentially sold at cost by Nintendo, and they may even sell it at a loss. In contrast, Nintendo's competitor Sony's PlayStation 5, as a more mature console that can already generate considerable profits, has "more cushion space" to absorb additional costs. Industry research analyst Nathan Naidu estimates that to offset the rising memory costs, Nintendo may need to increase the retail price of the Switch 2 by 15%. Currently, the console is priced at $450 in the U.S., making it the most expensive hardware product ever released by Nintendo. "If it crosses the $500 mark, it could be a decision they regret," said Nick McKay, a senior analyst at Freedom Capital Markets. Industry response strategies Faced with cost pressures, console manufacturers have limited options. Analysts say that game consoles are typically sold at thin margins, so cost increases in components are likely to be passed on to consumers. However, after a round of price increases due to tariffs earlier this year, further price increases may dampen demand. Some manufacturers are looking for alternative solutions. McKay from Freedom suggests that Nintendo may be able to "reduce the internal storage capacity of the Switch 2, transferring the cost to consumers who are forced to buy external storage cards." Emarketer analyst Jacob Bourne believes that if gaming expenditures further decline, manufacturers may choose to delay new product launches instead of risking price hikes. Diminished market prospects Currently, research institutions have begun to adjust their forecasts. Counterpoint Research estimates that memory prices have risen by about 50% at the beginning of this year, with a potential 30% increase in the fourth quarter of 2025 and a further 20% increase at the beginning of 2026. Although major console manufacturers typically lock in component supplies years in advance and mitigate cost impacts by extending product lifecycles, analysts believe that these strategies may not be sufficient to address the current situation. TrendForce has lowered its forecast for the game console market growth this year from 9.7% to 5.8%, and expects a 4.4% decline in 2026. Data from Circana, an industry tracking organization, shows that hardware spending on games decreased by 27% last month, reaching the lowest level since 1995. The average selling price during the period hit a historical high, reflecting both rising manufacturing costs and a lack of blockbuster games to drive hardware upgrades. Prices for high-end consoles are also at high levels. According to company announcements, Microsoft Corporation's Xbox Series X retails for about $650, while Sony's PlayStation 5 Pro is close to $750. Focus on financial reports: Cost control capabilities become investor focus Nintendo and Sony are set to release their financial reports next week, and the impact of memory costs on their gaming business profits is expected to be a focal point of attention. Data from Circana shows that the Switch 2 sales remain strong, making it the best-selling game hardware in the U.S. in 2025, debunking market rumors of "weakening Switch 2 demand," according to Jefferies Financial Group Inc. Citigroup analyst Tokiya Baba noted in a recent report that if quarterly performance exceeds expectations, Nintendo's "short-term investment attractiveness" could rise. He expects shipments of the Switch 2 to reach 7 million units from October to December. In addition, the release of "Super Mario Galaxy the Movie" could be another positive catalyst for the stock price. However, short-term optimism cannot hide long-term structural challenges. Smithers said, "They are selling consoles well now - that's not the issue. The issue is the memory crisis, and every dollar increase in price makes the situation even trickier." For the gaming industry, which is already dealing with inflation, tariffs, and slowing consumer demand, the rising cost of memory chips poses a new threat and may prolong the industry downturn until 2026.