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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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By peternelson on 11/17/2006 3:29:41 PM , Rating: 3
I believe Sony ARE initially making a large loss per console.

Regardless of the ebay reselling, the ps3 without games, when in the hands of the end-user-gamer will actually get played with ie likely one ps3 game (aside from any backcatalogue of ps2 content the owner has).

Sooner or later the owner will be curious about a new great title (in 2007 when volumes are up enough to justify release to market) so will then have at least another ps3 title.

Yes they make greater margins on software than hardware.

They will also make a few online download sales.

However, the big factor is the bluray.

What is it worth to Sony for that?

Well it is worth some $ per movie disk sold to a ps3 user.

BUT it is ALSO worth something to have their format beat hdhvd in the installed userbase race and win the format war.

Therefore, Sony could virtually give their ps3 away if it guaranteed they would own the market for movie media and be a significant studio seller of movies on that media.

The isuppli analysis likely does not include (small) retail margin, differences between the 3 global markets, import duties, sales taxes etc, nor the cost of the infrastructure to run the online gaming, but they are right that currently it's a net loss.

I'd agree that costs will come down over time (and maybe we see a selling price reduction too).

But taking into account the BR format and games sales (yes even sales of ps2 titles to run on ps3) they will make money.

Now the other question is value proposition for customer:

It's more expensive than x360, but I'm getting linux ability, HDMI output (you may not have a screen but in 3 years you may), bluray player, and the ability to self-swap to a bigger hard drive (large hard drives will reduce in price making this even more attractive) whilst the x360 is stuck with small size and I can't upgrade it with permission.

So, on the whole I agree with isuppli that the ps3 represents good value to the consumer, even at this launch price.

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