Research Firm Claims Sony Near Break-Even On PS3

With the latest version of its PlayStation 3 video game console, Sony Corp. not only seems to have found the magic price point to ignite sales during the all-important Christmas season, it also has managed to reduce hardware and manufacturing costs to near the breakeven point, according to iSuppli Corp.'s Teardown Analysis service.

Based on a dissection and analysis of the console, iSuppli has determined that the 120Gbyte Hard Disk Drive (HDD) version new PlayStation 3, 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.

"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," said Andrew Rassweiler, director and principal analyst, teardown services, for iSuppli. "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."

The new PlayStation 3 with 120GByte HDD model is priced at $299 in the United States-which means Sony sells each PlayStation 3 in the United States for $31.27 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," Rassweiler said.

Black Ink on Black Friday

The reduced cost and pricing for the PlayStation 3 arrived just in time for the peak Christmas sales season, including the all-important Black Friday week. Mainly because of the price reduction, PlayStation 3 sales reached an all-time high during the week of Black Friday. According to Sony, 440,000 PlayStation 3 consoles were sold in the United States during the week of November 29, a record for the product.

Previous sales of the PlayStation 3 had been weak primarily due to its relatively high price compared to the competition. However, with the price reduction, Sony now appears to have somewhat leveled the advantages enjoyed by its rivals.

Cost consciousness

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 65-nanometer and 45-nanometer nodes. Such chips are less expensive than those using older processes employed in previous-generation PlayStation 3 consoles.

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 220-watt master power supply, compared to a 400-watt supply in the first version. The lower wattage reduces the cost of the power supply as well as other power and cooling components.

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 2,568 components-down from 4,048 in the original version.

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