Sony Still Sells PlayStation 3 at a Loss – Analysis

Sony PlayStation 3 Slim 120GB Costs $336 to Manufacture

by Anton Shilov
12/15/2009 | 11:28 PM

Even though Sony Computer Entertainment has managed to greatly reduce the manufacturing cost of its PlayStation 3 video game system, the company still sells its console at a loss, according to a new teardown analysis conducted by iSuppli market research firm. In fact, the latest PS3 Slim 120GB costs $336.27 to make.

 

“Since the introduction of the PlayStation 3 in late 2006, Sony has subsidized the price of every console sold, a deficit the company has made up for with game sales and royalties. However, with each new revision of the game console hardware, Sony has aggressively designed out costs to reach the hardware and manufacturing breakeven point as quickly as possible. The latest version of the PlayStation 3 manages to further reduce the loss, even with the U.S. price of the console having fallen by $100 during the past year, said Andrew Rassweiler, director and principal analyst in teardown services division of iSuppli.

New Chips Help to Cut Costs

To reduce costs, this design of the latest-generation PlayStation 3 is significantly revised from previous versions. The major changes involve the use of less expensive semiconductors, a general redesign of the product and a reduction in the number of components in the console.

The new version employs some critical semiconductors that are manufactured, using more advanced semiconductor manufacturing technology at the 65nm and 45nm nodes. Such chips are less expensive than those using older processes employed in previous-generation PlayStation 3 consoles.

The Nvidia Reality Synthesizer (RSX) remains the most expensive chip in the PlayStation 3, at $45.82. However, that’s a 21% decline from the Reality Engine employed in the previous version of the PlayStation 3 hardware, based on pricing in October 2008. iSuppli believes Sony is employing a part that is made by using 65nm technology, compared to 90nm in the initial version of the PlayStation 3 in October 2006.

The latest PlayStation 3 features a new version of the IBM Cell processor, using 45nm process technology. iSuppli’s October estimate of the cost of the Cell was $37.73, a nearly 19% reduction from $46.46 for the 65nm part in the previous-generation PlayStation 3.

Still, the most expensive part of PS3 is still Blu-ray drive, which costs $66. It is also noteworthy that 256MB of XDR memory costs $39.2, which makes memory the third most expensive part of Sony PlayStation 3.

Given its extensive range of capabilities, the PlayStation 3 has always been a complex product with a large number of components. But the latest version is simplified considerably in terms of not only component and subsystem counts but also overall complexity. Excluding the controller and the box contents, the latest version of the PlayStation 3 includes approximately 2568 components, down from 4048 in the original version.

The new chips also cut the power usage of the PlayStation 3, allowing design changes that reduce hardware costs. The new system cuts the energy budget nearly in half from the first-generation hardware as the new PS3 employs a 220W master power supply, compared to a 400W supply in the first version. The lower wattage reduces the cost of the power supply as well as other power and cooling components.

PlayStation 3 Near the Tipping Point for Profitability

Based on a dissection and analysis of the console, iSuppli has determined that the PlayStation 3 Slim 120GB, released in September, carries a combined bill of materials (BOM) and manufacturing/test cost of $336.27. At a newly reduced retail price of $299, the latest version of the PlayStation 3 comes closer to breaking even than any previous version of the product.

The new PlayStation 3 120GB is priced at $299 in the United States, which means Sony sells each PlayStation 3 in the United States for $37.27 less than its materials and manufacturing cost. In comparison, iSuppli’s Teardown Analysis Service determined that Sony sold the previous-generation PlayStation 3 for $49.72 less than its manufacturing and materials cost, based on pricing from October 2008.

iSuppli’s teardown analysis accounts only for hardware and manufacturing costs and does not take into consideration other expenses, such as software, box contents and royalties. Thus, the difference between the cost of the product and the U.S. price is even greater than $31.27.

However, the U.S. price for the console likely is somewhat lower than overall worldwide average. Furthermore, ongoing reductions in component pricing will cause the materials cost to decline significantly in 2010.

“In light of these factors, the PlayStation 3 probably is already at or near the tipping point for profitability,” Mr. Rassweiler said.