Video game console launches are always somewhat chaotic affairs, but the ongoing coronavirus outbreak could make the planned blockbuster premieres of Sony’s PlayStation 5 and Microsoft’s Xbox Series X especially complicated.
Neither Sony nor Microsoft are expected to announce the dates of their releases by mid-summer. But both have said they plan to start shipping the consoles this fall – historically, that happens in late October or early November—in order to take advantage of the holiday shopping season.
But analysts say factory closures because of the coronavirus outbreak could result in either delayed releases or smaller initial stocks that cause retail shortages.
“My gut says we’re still going to see PS5 and Xbox Series X in North America in limited quantities before Black Friday, but the concept of a global launch is out the window now,” says P.J. McNealy, CEO of Digital World Research, referring to the busy shopping day after Thanksgiving.
Both companies declined to comment to Fortune about any impact coronavirus may have on their launch timelines. Typically, in the months leading up to a launch, though, the first consoles are coming off the assembly line and multiple rounds of testing are beginning. Large-scale manufacturing doesn’t usually start until May or June.
“With COVID-19, factories are shut down right now,” says McNealy. “That means testing and supplies will be constrained, which starts backing up and starts lowering the number of [consumer-ready consoles], even seven or eight months out.”
The Xbox and PlayStation are two of the biggest video game systems in the industry. The PS4 has sold over 103 million units since its launch. And while Microsoft does not divulge sales figures for the Xbox One, it has sold tens of millions of units in its current iteration.
New console launches are critical to both companies, though. The current systems are getting long in the tooth—they’re both six and a half years old—and their makers have been touting the benefits of the next generation for a while, which dampens sales of current generation products. Console sales in December were down 17%, according to The NPD Group, and down 22% for full-year 2019.
The China factor
Virtually every video game console is made in China. In 2019, nearly 90% of consoles imported to the U.S. were made there, according to Daniel Ahmad, senior analyst at video game market research firm Niko Partners.
The recent U.S.-China trade war and increased tariffs on Chinese imports may have prompted Sony and Microsoft to shift some of their manufacturing to other countries. If so, there would be less of a shortage in consoles than there would otherwise be.
“I think each of the console manufacturers is looking to Vietnam or South Korea or Taiwan for production,” says Michael Pachter, managing director of equity research at Wedbush Securities.
Another possibility for console makers is to shift manufacturing to Mexico, which may increase production costs, but at least some of that could be recouped from lower shipping expenses, since consoles earmarked for the North American market wouldn’t have to be freighted across the ocean.
Ahmad, though, notes that even if manufacturing had been moved outside of China, a number of key console components are still produced in China.
Microsoft’s biggest market is North America, so postponing a simultaneous global launch wouldn’t impact that company as much as it would Sony, which also relies heavily on Europe and its home country of Japan for sales.
One possibility, McNealy says, is the PS5 could debut in North America by Black Friday (in limited supplies), Japan sometime in December and Europe in the first quarter of 2021.
All analysts agree that it’s too early to know the full impact of coronavirus on the next console cycle, since the disease’s impact is still in flux. But Ahmad points out that we are quickly approaching a critical date.
“If the coronavirus outbreak is contained within the next month or two, then we would expect console manufacturers to be able to meet demand for the holiday quarter,” he told Fortune. “[However,] if manufacturers are unable to operate at full capacity before the end of Q2 2020, we could see … either limited supply or delayed releases.”
Pachter, though, is more optimistic.
“My guess is there won’t be much of an impact,” he says. “If there is one, it will just be a month or two.”
And, given recent reports that component costs for the PS5, which is loaded with advanced technology are running especially high, Sony may be okay with having more limited inventory than it initially planned.
Earlier this month, news broke that the current cost to manufacture each PS5 is $450. Therefore, if Sony hopes to break even on sales, it would have to price the new console at $470 to $500. That’s a significant jump from the $399 the PS4 launched at in 2013. And to remain competitive, Sony may be forced to sell the system at a loss while trying to make up for it from game sales, although that model is becoming outdated in the video game industry.
“If Sony is going to decide to price it at $400 and the bill of materials is $450, they’re not going to lose a lot of sleep if shipments are down,” says Pachter.
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