Where PlayStation 3 Price Cuts Come From

Report suggests hardware manufacturing costs coming down, down, down.

It is normal for hardware to be sold at a loss in the early days of a console's life but with the PlayStation 3 the burden was excessive.

Research firm iSuppli reckoned in 2006 that Sony was losing between $240 and $310 on every system it sold. A large chunk of the manufacturing costs came down to the Blu-ray drive and the graphics and central processors.

But now, 14 months later, the picture is very different. Sony is predicting that it will start making money on PS3 sales starting this year and one recent report suggests how that might be possible.

According to Kota Ezawa, an analyst with Nikko Citigroup, Sony has been able to bring down manufacturing costs per console to around $400.

"We think the biggest factor here is that simplification has become possible through a reduction in the parts count, leading to a reduction in costs," Business Week quotes Ezawa as writing.

That's likely the reason why Kaz Hirai, the new top man at Sony's game division, is so upbeat. In an interview with Reuters earlier this year, Hirai said he expected the PlayStation 3 hardware to become profitable by April 2009.

"We want to get to the positive side of the equation as quickly as possible," Hirai told Reuters.

Sony has been tinkering with the guts of the PlayStation 3 since launch. In addition to models having different sized hard drives, Sony has also been removing chips from the console that were responsible for compatibility with PlayStation 2 software.

Consumers have seen some of the benefits of Sony's cost-cutting too. In the US, the top model of the PS3 now sells for $499, down from $599 at launch.

And in the UK, where the console launched last March priced at £425 Sony has recently introduced a new bundle that lets new buyers choose two from 12 of Sony's most popular PlayStation 3 games in a bundle that costs £350.

We contacted Sony for this story to verify Ezawa's numbers but company representatives declined to comment on the matter.

Alex Wollenschlaeger
Editor, Kikizo