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Sony's $89 Cell processor
iSuppli calls the PlayStation 3 an "engineering masterpiece"

While Merrill Lynch may be one of the few firms projecting a win for the Xbox 360 by 2011, a new cost analysis for the PlayStation 3 puts a few more things into perspective with regards to the next generation console battle.

It looks as though Ken Kutaragi was right when he stated that the PS3, which will be priced at $499 and $599 respectively in the United States, is probably "too cheap." According to a new cost analysis by iSuppli, Sony will lose $307 for every 20GB PS3 it sells and $241 for each 60GB version. "With Sony taking a smaller loss on the higher-end model, it's not a surprise the company is steering customers to the 60Gbyte version," said iSuppli. For the United States, 20GB PS3s will account for 20% of the sales mix while the 60GB versions will take the remaining 80%.

Although its initial losses with the PS3 will be large, Sony co-chief operating officer Jack Tretton points out that the original PS and the PS2 became "incredibly" profitable after taking massive losses at launch.

iSuppli summed up it results by stating “While many fret over the high cost and price of the PlayStation 3 compared to the competition, iSuppli believes the console provides more processing power and capability than any consumer electronics device in history. Because of this, the PlayStation 3 is a great bargain, well worth its $599 price and $840.35 cost, iSuppli believes."

Microsoft, which was once seeing red to the tune of $153 per unit sold, is now making a profit of $75.70 on each console before marketing and distribution costs a year after launch.

Nintendo has already stated that it will make a profit on every Wii that it sells. Given that CompUSA lists its cost for the Wii at $237.50, Nintendo's actual costs are likely closer to the $200 mark. That shouldn't be too surprising given that Microsoft's Richard Teversham likened the Wii to a Gamecube with a DVD drive (someone should tell Tevesham that the Wii doesn't actually play DVDs…for now).

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RE: Value
By dreddly on 11/17/2006 3:23:24 AM , Rating: 3
Yeah, if you look at the length of the product cycle of the PS2, I think that the PS3 will be the better value in the long run.

Given the GB size of HD movies, and the relatively small space of a DVD, I think 5 years from the need for a HD drive will be inevitable.

Microsoft has a shorter product cycle (I still like my original xbox) and is first to market, but HD output, easily expandable storage and HD drive are better long term strategies.

I am sure sony would have been happier if Blueray or HDDVD had better market penetration at this point - to make the value evident - but in the long run (if they can afford the losses) I think the PS3 is a better value.

RE: Value
By akugami on 11/17/2006 4:53:49 PM , Rating: 3
I don't disagree that net value wise, considering the cost of the components, the PS3 is great. However, that still doesn't mean it isn't overpriced as a game console. Which I feel is what will sink the PS3 ship in the long haul.

If you're looking at it from a HD movie perspective, Blu-Ray is not the guaranteed winner and given the Sony track record on introducing new formats, I wouldn't bet on Blu-Ray myself. And I'm someone who thinks that Blu-Ray is the superior format compared to HD-DVD. I don't think HD movies will truly take off until at least 30% of the market owns HDTV's and that's still a few years off. So we might not know how this battle wins out for years to come. But again, it's no guarantee that Blu-Ray will win.

And Sony would hate it if HD-DVD wins because that is a whole lot of money they would lose out on in licensing fees from players and blank as well as already pressed Blu-Ray discs. Think how many millions of players and hundreds of millions, if not billions, of discs are already out for CD's as well as DVD's. Don't think for a minute the DVD-R and DVD+R wars were mainly a disagreement of differences in implementation. It was about money. HD-DVD and Blu-Ray never got along because of the same reason. The more tech you have tied up in the new format, the larger slice of the pie you get.

The original Xbox was by necessity a short lived product due to coming late to the party after both the Gamecube and PS2 was already out as well as Xbox losing money, and lots of it. Microsoft needed a new product with updated specs to bring a little more hype to their video game business and the time was right for them. If MS had released the Xbox 360 this holiday season I don't know that they'd sell as well as they have. The business side of things just made sense for them to release the 360 last year and them coming late to the party was the main reasons why the Xbox had such a short life cycle.

Believe it or not, the Sony "10 year life cycle" of the PS3 will be both likely correct and overrated. The NES had a 10 year life cycle as did the PS1 and likely the PS2, that doesn't mean that roughly 5-6 years after the original introduction of the consoles the console makers didn't introduce new consoles. Nintendo introduced the SNES about 6 years after the NES and I think it was close to 10 years after the introduction of the NES that it was finally retired. Likewise the PS1 had close to a 10 year life cycle even though the PS2 was introduced about 5-6 years after it. The PS2 will likely have a 10 year life cycle even though the PS3 has been introduced. So you can expect PS2 consoles to be sold and manufactured for another 3 years.

Sony's problem is that while the PS3 is very powerful, it will need to introduce another console in 5-6 years time to compete with MS and Nintendo's new consoles. Think of it this way, look at PC graphics cards. Look how much the power of the latest GPU's have advanced in 5 years time. Go back 5 years and go back 10 years and you will see huge differences in quality. So while Sony might be still selling PS3's in roughly 8-10 years time, it will need to introduce new consoles in about 5-6 years time or lose out to Nintendo and MS's new consoles in both hype and features. And don't kid yourself, Nintendo must have a new console out at that time even if all it is is Wii 2.0 and MS will need something a little more powerful to combat the little bit of extra power that developers will be able to squeeze out of the PS3 at that time due to familiarity.

Basically it's a fanboy dream if you think your PS3 will still be cutting edge and not need to buy another console for the latest and greatest in gaming.

"Game reviewers fought each other to write the most glowing coverage possible for the powerhouse Sony, MS systems. Reviewers flipped coins to see who would review the Nintendo Wii. The losers got stuck with the job." -- Andy Marken
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