iSuppli teardown report shows PS3 is much cheaper to build today than in 2006

Sony's PS3 game console is popular among many gamers, but faces significant competition from the Xbox 360 and the Nintendo Wii. Much of the pressure placed on the PS3 by the other two major game consoles is one of price.

One of the reasons that the PS3 is still priced well above some versions of the Xbox 360 and the Nintendo Wii is because the components and technology used in the PS3 make it more expensive to build. It's hard for Sony to cut the price of its console when the system is already being sold at a major loss.

When the PS3 first launched in 2006, iSuppli tore the system down and found that it cost Sony about $840 to build the version of the PS3 selling for $599 at the time, accounting for a loss of around $240 per PS3 sold. Sony expected to make the money up on the backend with game and accessory sales.

The basic PS3 console, which sold for $499 in 2006, cost Sony only slightly less to build at $805 according to iSuppli. After two years of availability, iSuppli has again performed a teardown of the PS3 and found that Sony is still losing money on the console.

The bright light for the electronics giant is that despite still selling at a loss, the PS3 is losing much less money today than it did in 2006. The research firm reports that the PS3 costs Sony about $448 to build and the system sells for $399. The loss Sony is now taking on the PS3 amounts to about $50.

iSuppli analyst Andrew Rassweiler told Business Week, "Every time we do a teardown, it's sort of backward-looking. Sony is one step ahead of us and probably has plans to re-spin the hardware to reduce the costs yet again."

The key to reducing the cost to build the PS3 so significantly for Sony is the combination of what used to take two or more chips on early PS3 models to a single chip for the same tasks on today's PS3. The console has also moved to smaller nanometer scale build processes for the GPU and the Cell processor. The NVIDIA GPU and the Cell processor in early PS3 were built on a 90nm scale; today the parts are built on a 65nm scale making them cheaper to produce. The Cell processor is now estimated to cost $46 compared to the $89 price tag in 2006.

The NVIDIA graphics chip now costs $58 compared to the $129 in 2006. The total number of parts used in the PS3 was 4,048 in 2006 and today the PS3 uses 2,820. Rassweiler says, "At the end of the day the PS3 is doing the same thing it did before, but with two-thirds as many parts."

DailyTech reported in January of 2008 that Sony expected the PS3 to be profitable in 2009. If the components inside the console continue to drop in price as they have since introduction, Sony may well meet that goal in 2009.

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