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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: Estimated costs
By Oregonian2 on 11/17/2006 1:53:39 PM , Rating: 2
The costs put out by this company do seem high. I think they "did" Toshiba's HD-DVD player and declared they were losing money on it while Toshiba said no-way and that they were profitable (which I'd expect, they're not exactly the big movie-disk maker who would make it up on the software). That said, the numbers as presented are a problem.

They say it costs $840 for a $600 box, so the maker loses $240. This is bogus to begin with because Sony doesn't get $600 on sale of it, there's the seller's margin, import duty, brokerage fees, etc that come off of the selling price to yield what Sony gets. Maybe this market has smaller margins, but to cover advertising and other selling costs (plus hopefully profit) retail sellers usually demand pretty good margins on things, as much as 40%. Maybe in this market it can be smaller, but it still needs to be significant to be worthwhile selling by a retailer.

I can only conclude that the retail-selling costs are included as percentage "tax" on the parts-costs that they estimate. That would be the only thing that makes things more sensible.

RE: Estimated costs
By Lonyo on 11/17/2006 5:32:11 PM , Rating: 2
But... there is no sellers margin, and that's why the retailers love the Wii.
IIRC retailers pay pretty much $600 for a PS3, then sell it for $600, they make money on software.
The Wii is sold to them for $237.50 and they sell it for $250, so they make more margin on the hardware, and THEN they also make money on the software.
But you are right about some of the other numbers, Sony have to distribute the things etc.

RE: Estimated costs
By Lonyo on 11/17/2006 6:04:51 PM , Rating: 2
They also list the Xbox 360 DVD drive being almost $20, but a plain DVD drive from Newegg costs $12 retail.

I'm really not sure where they get their numbers from, but they do seem very suspect on both sides of it, some seem too high, some seem too low.

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