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It's no secret that the cheaper Xbox 360 and Nintendo Wii are seeing better performance in sales largely due to their price-tags. The gaming populous has repeatedly stated that the number-one reason why they won't be buying a PS3 is because it costs an upward of $600. Now after constantly denying any thoughts of a price-cut, word from Sony has just come that a price-cut is actually now being considered for the console.

In an article with the Associated Press, Sony Senior Vice President Takao Yuhara spoke about the possibility of a price-cut stating: "Pricing is among the factors Sony Corp. is studying as it expects to break even in its money-losing gaming business next fiscal year." He continued with: "We may look at the price as part of our strategy to expand the market when the timing is right."

But perhaps the most intriguing of the comments made is that Yuhara-san mentioned that the plan of Sony breaking even by next fiscal year actually includes various financial factors, and a price-cut is one of them: "Such factors, including price cuts to some extent, are factored in [the break even plan]."

Pretty exciting stuff. While a price cut anytime soon will probably upset the first millions who bought the console -- a planned cut just around the Fall season would give Sony the holiday boost it needs. It would be in Sony's best intentions to make the price-cut worthwhile or perhaps offer a free controller or game if the price-cut isn't any more than $50.

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There have always been game consoles that competed directly against each other for sales, market share, and third-party support. Today, the battle is very much between Microsoft's Xbox 360 and Sony's PlayStation 3, with Nintendo opting to play a different kind of game with the Wii. As the 360 and PS3 are closely matched in terms of performance and the types of games they play, the winner may be the company that reduces the cost of their platform the fastest.

One of the best ways to reduce manufacturing costs of any high-end electronic devices is to use a die shrink, where a more fine-grained optical process allows more transistors to be packed into the same area. In the case of a game console, the same number of transistors can be delivered in a smaller area and with lower power dissipation, lowering the cost of manufacturing the console by lowering the cost per-chip and cutting down on the amount of active cooling needed.

For both the 360 and PS3, the big move is from a 90nm process to a 65nm one. Sony indicated in a recent press conference that the company had already started production of parts of the PS3 chipset on a 65nm process. Microsoft had previously announced, along with its manufacturing partner Chartered Semiconductor, that the Xbox CPU would be moving to 65nm Silicon-on-Insulator (SOI) technology in the first quarter of 2007, although there are rumors that this migration may not be complete until the second quarter.

How much could each company save by this migration? A report in the Chinese-language paper Commercial Times estimates that Microsoft could reduce the cost of the CPU, northbridge, and GPU on the 360 from about $200 to $150 with a 65nm migration. The research firm iSuppli estimated that the total bill-of-material (BOM) cost of the Premium Xbox 360 is down to about $323 from $525 at launch, which would significantly help Microsoft's margins.

iSuppli puts the BOM cost of the premium PS3 at $840, which means Sony is losing as much as $240 on each unit. A similar component price reduction from the move to a 65nm process would lower this loss to under $200 per console.

If Sony completes the transition first, it will allow the company to execute the much-rumored price drop on the PS3, which can't come soon enough for Sony's flagship console. The PS3 sold well out of the gate but sales have tapered off as the non-early-adopting public waits for more compelling games and a lower sticker price. As for the 360, it has sold moderately well so far, with Microsoft estimating 10.4 million units delivered to retailers, but if Microsoft wants to maintain their lead over the PS3 they will likely have to drop their price as well. Microsoft has been coy about discussing any 360 price drops, although they did once say that consumers could expect one cut per year.

It is worth noting that Nintendo also benefited from process shrinks with the Wii, although their strategy was to take similar technology from the GameCube with more modest improvements (a higher clock speed, mostly) and gain the cost benefit of the die shrink right away. So far, their gamble has paid off, as Wiis continue to be in short supply.

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