Sony Computer Entertainment Inc. does no longer lose hundreds of dollars on every Sony PlayStation 3 game console it makes, an analyst said late last year. Apparently, the latest game system from Sony costs about $400 to make, which means that the company has managed to reduce manufacturing costs by about 50% since the launch in late 2006.

Nikko Citigroup’s analyst Kota Ezawa estimates that Sony’s PlayStation 3 game console now costs $400 to make thanks to “shrink of PlayStation 3 chips and tweak” of its design, reports BusinessWeek . While Sony denied that the latest version of the PlayStation 3 featured key chip components produced using thinner (65nm) process technology, typically processors lose in cost significantly thanks to yield improvements.

According to estimates by analysts, Sony used to lose $241 and $306 on its $599 and $499 PlayStation 3 game consoles, respectively, when they were introduced in November, 2006. iSuppli analyst firm claimed that Sony PlayStation 3 20GB and 60GB cost $805 and $820, respectively, when launched back in 2006. Sony PS3 is made in China and Taiwan, where manufacturers charge in dollars.

Microsoft Corp. managed to trim production cost of its Microsoft Xbox 360 game console by 40% a year after introduction. Since Sony PlayStation 3 features built-in Blu-ray disc drive that used to cost $125 initially and was considered as one of the most expensive components of PS3 due to low yields of blue lasers. Due to yield improvement of the latter, it can be expected that Blu-ray drives have become more affordable since 2006 and SCEI has really managed to bring the PS3 manufacturing cost down to around $400, or by approximately 50%.

Sony PlayStation 3 console is based on the Cell processor developed by IBM, Sony and Toshiba, the RSX graphics chip by Nvidia Corp., wireless network and Bluetooth connectivity and is equipped with Blu-ray optical disk drive. There are several versions of the consoles available around the world with 60GB or 80GB hard disk drives and variable compatibility with PlayStation 1/2 games as well as 40GB version that cannot play old games at all. The official prices of Sony PlayStation 3 40GB and 80GB in the USA are $399 and $499, respectively, European customers have to pay €399 ($590) and €499 ($738) for 40GB and 60GB models, respectively, whereas Japanese gamers can obtain PlayStation 3 40GB for ¥39 980 ($367 or €248).

While Sony Computer Entertainment Inc. hardly makes any money selling Sony PlayStation 3 in Japan and the USA, it most certainly gets profits by selling its latest game system in Europe at $590 and $738, thanks to strong Euro, weak U.S. Dollar and some other factors.

Despite of production cost cut as well as favourable sales in the European Union, Nikko Citigroup’s Kota Ezawa still estimates SCEI will lose $1.4 billion this fiscal year, following last year’s $2.1 billion loss and also does not expect the game business of Sony to be prosperous until late 2009.