According to the latest issue of Japanese magazine Toyo Keizai, Merrill Lynch Japan Securities has recently calculated an analysis that the production of a single PlayStation 3 console will cost Sony approximately 54,000 yen to make ($494), as of its initial release in 2006.
Merrill Lynch Japan estimates that the machine's main components--namely its Cell chip, RSX, and BD-ROM drive--will cost about 11,000 yen ($101) each. After adding the other electronics that will be used in the PS3, the machine's production cost goes up to 54,000 yen.
Given that Sony's PS3 will face stiff competition from Microsoft's Xbox 360, the chances that Sony will release its console at its production cost is slim. Under the assumption that the Xbox 360 is expected to sell at around $299, Merrill Lynch Japan predicts that Sony will sell each PS3 at the price of 44,800 yen ($410) in Japan and $399 in America. That would mean Sony would suffer a loss of more than 130 billion yen ($1.18 billion) during the first year of the PS3's release.
By comparison, the PlayStation 2 cost 39,800 yen ($364) in Japan and $299 in America when it launched in 2000. During its first year of release, Sony Computer Entertainment suffered a loss of 51.1 billion yen ($458 million), but it recovered the next year with a profit of 82.9 billion yen ($759 million), followed by 112.6 billion yen ($1.03 billion) the year after.
It is normal for game companies to take a loss on hardware whenever a new console launches, since they typically focus on acquiring market share rather than generating a profit during the first year. During the second year and afterward, they can recover the losses with the savings that come from mass production and with licensing fees from publishers.
However, Merrill Lynch Japan warns that the normal console business cycle may be disrupted if Microsoft cuts the Xbox 360's price when the PlayStation 3 launches. The report goes on to say that such a move could hurt Sony's plans, bringing an additional loss of 80 billion yen ($730 million) in its second year and 50 billion yen ($457 million) in its third year. Thus far, Sony has already invested 200 billion yen ($1.83 billion) into development and production for the Cell chip alone.
Toyo Keizai goes on to interview Sony Computer Entertainment president Ken Kutaragi, who avoided revealing the PS3's price but hinted that it would not be marked down excessively. "Whether consumers think a product is expensive or cheap all depends on the balance between its appeal and price," he said. "Our ideal [for the PS3] is for consumers to think to themselves, 'OK, I'll work more hours and buy it.' We want people to feel that they want it, no matter what."
"When Nintendo was selling its 16-bit machine at around 12,500 yen ($114), we sold the first PlayStation at 39,800 yen ($364)," continued Kutaragi. "The press was saying that it was expensive, but it was a huge hit. It's the same thing with the PlayStation Portable from last year. The Game Boy Advance is a same handheld gaming machine, and it costs less than 10 thousand yen ($91). On the other hand, our PSP had cost 25,000 yen ($229). But people lined up overnight to buy it, and it sold out on the day of its launch. It all depends on whether people want it. Of course, I'm confident that the PS3 is a product that people will definitely want."
got this at
http://www.gamespot.com/news/2005/0...ws_6128295.html _______________________________________________________
i found this, the xbox cost $400 to make and sold for $300 i found this at a diff website.
i'm not surprise that the price will be in the $400 range. With that high of a price, people might be a little hesitant to get one. The Blu-Ray technology definitely makes the price higher. Xbox 360 is supposed to be $299. This time around, Xbox will be a force to reckoned with for sure.
I read that, I'm a little angry because I won't be able to afford this until the price breaks. As far as xbox gaining a bigger market share by breaking their price before the ps3 hits, I would wait for the ps3.
Well I am sure that you are aware of the term dumping. If not I will define it for you. Dumping occurs when the manufacture or their distributor sells a product in a foreign country at lower prices than what was charged in the country that produced it. US laws have been placed against dumping and require the foreign firms must price their products to include 10 percent overhead costs plus an additional 8 percent profit margin. The only problem with this is that it can take a lot of time to prove these accusations of dumping. Think of it this way. Now here?s my personal opinion: If the company posts the cost that it requires to produce an item and claim this number to be higher then it really is then sell the item well below this price. Wouldn?t it appear to the costumer that they are receiving a good deal on the item and be more influenced to purchase it? If the company posted that it only cost them one hundred dollars or even one hundred and fifty dollars then the costumer would be turned off by a posted market price of two-hundred dollars or higher. This is business tactics that occur in other countries because they do not have the same regulations put in place such as the US does. When you hear a report/post of a price that is given from a foreign country do not assume the same trade/business techniques that we have in our country. Back to the hard facts: The only advantage that a company has when they dump is that they reduce surplus products in foreign markets or to gain a foothold in a new market by offering products for a lower price. Meaning, we could very easily manufacture these consoles in the US but since we have regulations prohibiting dumping we turn to outside sources. Japan, China, etc. If the consoles were produced in the US it would cost a tremendous amount of money due to additional costs put in place by our government (defined above). Over-seas countries do this so that they gain a ?foothold? on the market. Look at it in a business sense. You own SONY or whatever you wish. You come out with a new console and need a place to manufacture it. This is known as outsourcing. Would you want the console made in the US with regulations and laws put in place requiring the mark up on import cost? Or would you want a company that does not require these regulations and is willing to produce your console for a lower price. You do the math, its making a wise business decision. NOW! For all of you out there thinking I am for this or against this I can honestly tell you I am natural. I might have sounded bias and I apologize. I am not arguing with anyone I just felt the need to explain the facts. I hope someone can find this informative. Thank you
yes but with a bit of luck some of the kinks and bugs will have been worked out by the time we get it in the UK (I assume its coming out in the states and japan first)
Yeah I always wait a few months after a consoles release to get 1. By then some or most bugs might be worked out and prices drop. Plus by then some idiot might buy one decides he doesn't like it (god forbid) and take it Gamestop or EB and sell it leaving me with an even lower price and in(Hopefully)new condition.
I think when they say "production cost" it doesn't necessarily mean the price of the actual components. Probally a lot of the price is from the large cost of research & development of the technology. So it just seems like they are taking a "loss" on selling the systems cheaper than they say it cost to make them. If they sold each system for the total price it cost to make them, they would be too expensive for average user, and they would never make investment money back.
I'm not so sure about that. If it was going to sell at $400 it would be a great boost to sales if they announced it right now. Then people could decide between the PS3 and XBox 360 right away and it would make people hesitant to get the XBox 360 right away. If Sony did already decide on a final price then they would say straight away to hurt XBox 360 sales.
outsourcing is where a business entity other than your own does the work for you. It typically is non-core work, and allows a lot of cost flexibility. Outsourcing may be on or off shore.
offshoring is where tasks are performed in countries other than where management control is based. Companies do this to seek lower costs and/or better market access.
I just thought I'd clarify that for you, slotstick, because it seemed like you were confusing the two at times.
