Report: PS5 Manufacturing Cost Pushed Up to Around $450 - News
by William D'Angelo , posted on 01 March 2020 / 6,694 Views
PlayStation 5 components have become scarce enough to push up the manufacturing costs of Sony's next generation to around $450 each, according to a report from Bloomberg.
This is forcing Sony Interactive Entertainment to make a difficult decision on the launch price of the PS5, who is set to release the console this Holiday season, alongside rival Microsoft. Microsoft also plans to launch their next generation console, the Xbox Series X, this Holiday.
Sony in the past has finalized the price of their consoles the February before launch, followed by starting mass production in the spring. However with the PS5, Sony is taking a "wait-and-see approach" according to sources who wished to remain anonymous.
The PlayStation 4 released in 2013 at a retail price of $399, while manufacturing cost was estimated at $381. With around $450 in cost per PS5 unit, a similar gross margin would put the retail price at $470 or higher.
"Consumers will benchmark their expectations based on the PS4 Pro and PS4," said Macquarie Capital analyst Damian Thong. "If Sony prices above that, it would likely be to balance a need to offset higher materials cost, against risk to demand."
The biggest issue for Sony according to the report is "ensuring a reliable supply of DRAM and NAND flash memory, with both in high demand as smartphone makers gear up for fifth-generation devices."
It isn't unheard of for video game companies to sell hardware at the break even point or even at a loss, as sales of software or online subscription services more than make up the difference. Sony’s Chief Executive Officer Kenichiro Yoshida has said the video game business should be based on the number of active users and not the number of consoles sold.
"Some Sony games staff think it should sell the new console at a loss if necessary to match Microsoft’s price, while other Sony executives would prefer to make money as the company did with the PS4," reads the report.
"We must keep PlayStation 5’s bill of materials under our control and we need to make the correct number of units in the initial production," Sony’s Chief Financial Officer Hiroki Totoki said at an earnings call to investors earlier this month.
The majority of the PS5 components have been locked down. This includes the cooling system, which costs a few dollars each. This is higher than usual as it normally costs under a dollar, however, Sony wanted to make sure the console can cool itself without any issues.
The sources say the coronavirus outbreak have not impacted Sony's plans with the PlayStation 5 production. The company has not decided how many PS5 units it plans to ship at launch.
Sony plans to released a new version of the PlayStation VR that will release after the launch of the PlayStation 5, according to the sources.
"Sony executives are voicing patience about the next console’s pricing as they anticipate the transition to be a gradual one, said people familiar with its day-to-day operations," reads the report.
"Many of the games launched for the PlayStation 5 will also be available to play on the predecessor machine, so revenue from software and related network services is expected to keep the business performance intact. Microsoft and Sony are both expanding their respective online subscription services, revenue from which may allow them greater flexibility on hardware pricing."
One of the main factors on the retail price of the PlayStation 5 will be determined by the price Microsoft sets for the Xbox Series X, according to people who work in in the PlayStation business.
Sony declined to comment on the report.
A life-long and avid gamer, William D'Angelo was first introduced to VGChartz in 2007. After years of supporting the site, he was brought on in 2010 as a junior analyst, working his way up to lead analyst in 2012. He has expanded his involvement in the gaming community by producing content on his own YouTube channel and Twitch channel dedicated to gaming Let's Plays and tutorials. You can contact the author at wdangelo@vgchartz.com or on Twitter @TrunksWD.
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So $500. Remember this is just the system not including shipping, retail, controller, and other costs.
Or marketing and R&D expenses on the hardware.
I'm fine with this.
A $450 launch price will be about the same as the $400 2013 launch price, adjusting for inflation.
No big deal for me.
I think they could sell it at 449$ and just break even, and recoup with PS+, games, etc. Xbox Series X may be 499$ or more so in that case Sony would have a price advantage with the premium console. Meanwhile, I think the Lockhart will be aimed at 399$, the same price as Xbox One X/PS4 Pro now.
They said many games not all games.
There are other expenses to factor in like shipping, storage, retail cut, and marketing. So it would be more like 600$USD to break even on manufacturing, but it would be significantly higher to break even on development cost and marketing. I am not sure those figures.
Either way, it sounds like Sony is going to take a loss on the next generation, because it is not going to sell very well if the price is too high.
Nope Jumping.
If with BOM of PS4 estimate at 380 at the time of launch and they selling it for 399 needed a game and PS+ to break even (so PS4 was likely costing 460 for Sony at launch, because the game cut and PS+ profit shall be considered not the total revenue) so PS5 if BOM right now is 450 (which can drop in 10 months) then that would mean at most 550 total cost.
I would expect to see Sony take a loss on this and launch at $399 just to keep positive swing from PS4 era. They launched the PS3 at a high price and it stung at the time. Regardless, I'm still looking forward to seeing what the PS5 can do.
"Many of the games launched for the PlayStation 5 will also be available to play on the PS4". I wonder if people will be as hard on Sony as they have been on MS just a few days ago about this, or suddenly it'll be not that big a deal. My guess is no.
Of course people will not be as hard on Sony as they are with Microsoft. You don't hear Sony making preemptive excuses.
@LivingMetal Preemptive excuses? You mean being honest about their business?
@LivingMetal I wish I had 10,000 upvotes for that one. Pre-emptive excuses might as well be MS's slogan at this point. Almost everything Phil has said has been one big excuse as to why XB1SX won't sell as much as PS5.
Many means anything, almost all 3rd party games will be cross gen and several of PS4 games can be patched for better performance on PS4 besides BC.
@hiccup, being honest isn't an accusation you can use against Papa Phill.
@Bandorr According to the same logic of people commenting on the other thread, it is still many less reasons to buy a PS5 tho. Or does it not work that way anymore?
Using the "preemptive excuse"... How many of you see this article as a preemptive excuse from Sony? "Hey guys the PS5 is gonna be a bit pricier cause the parts are expensive because of smartphones". It's only an "excuse" if it's an Xbox exec who says something.
@hiccupthehuman higher manufacturing costs normally equates to higher end costs. This is a fairly universal concept across any manufacturing procedure. No excuses there. But as we all already know, exclusives help set the uniqueness of a console while giving it purchasing incentives. And as we have observed this current gen, Xbox One sales have fallen behind both the PS4 and the Switch in part of lack of exclusives. So when Phil starts mouthing off "NO EXCLUSIVES NO EXCLUSIVES NO EXCLUSIVES NO..." before the release of the next Xbox, we know exactly what's up.
How could that be Sony making excuses if this is a rumor made by a journal without a single person named saying this?
You are trying to make something that makes 0 sense out of it.
I'm going to bet that Sony has at least some content in the pipeline for the launch window that is exclusive to PS5. If If it turns they don't, then they'll get criticism. I see no point in upgrading to an expensive 9th gen console just for slightly prettied up versions of the exact same games. XSX has already shown its hand by saying there won't be exclusive content for two years, which is not really good enough to justify a $500 console.
@Cerebralbore101 You're really overemphasizing how much console sales will actually matter going forward. Even in this very article it says: " Sony’s Chief Executive Officer Kenichiro Yoshida has said the video game business should be based on the number of active users and not the number of consoles sold. "
@DonFerrari I didn't say Sony was making preemtive excuses. I was arguing people are quick to say MS makes excuses for whatever, when in actuality there is no preemptive excuses from either side.
1 - It doesn't matter how many consoles you sold but how many are buying titles is what he said, Sony presented that from like 110M consoles solds 104M were still actively in use. That is a very different stuff from what you are trying to say. Because actually it was always more important how many of the consoles solds buy games because they haven't started selling HW for profit until the third year of PS4.
2 - That is because MS do to many excuses.
Sony said it so it must be good for the industry now and completely original and no other company said anything similar up until now.
@DonFerrari
1) "It doesn't matter how many consoles you sold but how many are buying titles is what he said"
Exactly. So whether people buy the games on Xbox One or Xbox Series X is not an issue. If people wait a year or two before buying a next-gen console (which is what the average consumer does), then MS is smart to keep those people engaged in the Xbox ecosystem by still releasing new games for them on Xbox One. The CEOs of both MS and Sony agree on this. Yet only one company gets derided for it.
2)
What I'm saying is that people spin whatever claim they want as "excuses".
I guarantee that if it was MS that said "Smartphones are causing us to price the Xbox Series X pricier than expected", some people here would count it as another "excuse" as to why the Xbox Series X would hypothetically not sell well, just more damage controlling. But if Sony says it, it's just "common manufacturing process". Again, the same double standards.
Considering the BOM is 450 there is a very good chance of it releasing 399.
Again why is this downvoted?
Yes Bandorr, it is the starting point, rumor cost and 10 months away from release (cost should drop 50-100 within 1 year usually) and with PS+ being stronger than ever and PS selling more first party they are at a point where the 399 PS4 needing any game plus PS+ to break even meaning a 70USD higher could be quite closer in 10 months and Sony could eat a little more loss and make it 2 games and PS+ to break even launching for 399.
It is all dependent of what they think MS will do, how fast they want PS5 to take off and their capacity to produce console.
I'm not saying they will for sure release for 399, but that there is a very good chance. Just remember Sony haven't set the price yet exactly because they are still projecting what will be the most efficient one based on competition, cost, capacity, etc.
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