Source: PS3 Still May Not Be Profitable with 70% Cost Reduction

by Jacob Mazel, posted on 14 August 2009 / 5,899 Views

In a recent investor conference call, Sony announced that PS3 production costs had dropped 70%. Many had taken this to mean that PS3 production costs from the November 2006 launch have dropped by 70%. Researcher iSupply had estimated that the $600 60 gig PS3 cost $840 to manufacture in November 2006 – leading many to believe that PS3 cost only $252 to make as of June 2009. According to a source familiar with the manufacturing costs of hardware – the PS3 was reduced by 70% from the start of the manufacturing process – not from the November 2006 launch. While this may not seem like a significant difference, the Xbox 360 apparently cost $850 to make per unit at the start of its production run. By the time Xbox 360 launched in November 2005, our source claims the cost of the parts had come down enough that it only cost $460 to make a single Xbox 360.

Sony is an engineering company at heart, so it wouldn’t be surprising if the initial cost of production was reduced by $300-$500 by the time the PS3 launched in November 2006 even though the system has a lot of very expensive parts to it. Our source believes that $1150-$1250 is a conservative figure for what it cost to make the first PS3s in the run up to the November 2006 launch. Knocking off 70% of $1200 from the initial manufacturing cost through June 2009 would mean the PS3 cost $360 rather than $252 to make.

Presumably a PS3 slim, manufactured with fewer components would reduce these costs further, perhaps allowing Sony to just about break even with a $350 or $300 price point if the initial cost of making a PS3 was $1200. If PS3 costs at the beginning of production were higher than that though, Sony is likely to return to heavy losses with the (highly) likely upcoming price cuts.

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johnsobas (on 17 August 2009)

source or not, the one thing the article brings up that people never thought about before was that the costs could have been quoted from the beginning of the manufacturing process, not from launch. The quote was manufacturing costs have been decreased 70%, it never said since launch or any kind of time frame at all. The $1200 is not given a source but it could have easily cost much higher than at launch. Even the isupply numbers are questionable. They must be making some cost savings to be able to sell it at $300 though.

cajunboy1 (on 17 August 2009)

I don't think there will be a slim soon but a price cut I definitely think so and soon. I think the info in the article is possibly bogus. A source they say. Hect, that could be anyone.

JEDE3 (on 16 August 2009)

LOL @ nightsurge.... funny... you just did the exact thing you kept telling mei was doing. fucking hypocrite

Blackmoor (on 16 August 2009)

This is all bullshit. When there are official sources then believe these guys.

Xoj (on 16 August 2009)

seriously, with any source, it's kinda hard to believe in, he says "our sources" believe 1150$-1200$. and highest number by isupply was 808$-880$ which is high enough by launch. and sony already removed PS2 chip and other stuff.

papflesje (on 16 August 2009)

@ pterodactyl: nice way of believing an article based on suggestion and "I think"-methods and immediately concluding the company it is referring to is purposely misleading. There are words for people like you @ article: I have a source too, it's called my thumb. Seriously, if you're going to come up with things like this to just "guess" and hedge everything with modal verbs and so-called sources that are "familiar with the manufacturing costs of hardware"... Seriously.... I'll ask my neighbour what he thinks about the PS3 Slim or Project natal and if he says "things like that can't exist", I'll just write "source with bundles of experience with 3D (i.e. life) says things like the Slim and Natal possibly may never exist". /sigh

pterodactyl (on 15 August 2009)

I knew there was no way Sony could pull a profit on the PS3. That 70% number was mentioned in passing during a conference call and was, in all possibility, referring to something other than production costs since Nov. 2006. Leave it to Sony to obfuscate and manipulate.

heruamon (on 15 August 2009)

The proof will be in their earnings statements...since they had better have some SOLD reasons for why they won't be profitable...since production cost won't be it...

BladeOfGod (on 15 August 2009)

The key word is ''may''. And we should take this as a truth? without proofs? or links?

Vetteman94 (on 15 August 2009)

Wow, so this article speculates about the initial production cost and what the 70% cost reduction actually is and we should take it as truth? Without any actual proof? Oh I get it a "source" said so, well hiphopgamer has thse as well and we dont believe him now do we.

Kai Master (on 15 August 2009)

hum... how to post images on comments? Can't?

Kai Master (on 15 August 2009)

[IMG][/IMG] Credits :

Diablerie (on 15 August 2009)

Hard facts from who? This article is doing the same thing as everything else I've seen the past week or so about the "70%" number.

slowmo (on 15 August 2009)

@darendt - The best hardware last generation performance and arguably hardware wise was the original xbox yet it had it's lifespan cut short due to lower than expected sales and constant losses. It doesn't matter how good the hardware is if software developers and buyers turn their backs. The PS3 should have a good enough userbase now to fulfill a decent lifespan but it's not the hardware that is saving it but the fact it will have strong software support, unlike the xbox which lost third party support early on. I like how there is so many users here doubting a article with hard facts and figures yet are willing to take rumours of a slim and a cut to $300 for the PS3 as gospel. There is a serious case of rose tinted spectacles going on in the Sony camp on here. I personally think the article is probaly on the money as I don't believe for a second they've got PS3 manufacturing costs sub $300 yet.

Xoj (on 15 August 2009)

so yeah it was a huge lost.

Xoj (on 15 August 2009)

isupply released numbers, it was 808$ for 20gb and 880$ for the 60gb. the were selling it for 400$-600$

MonstaMack (on 15 August 2009)

So Sony is losing even more money when you factor in they will be selling off the old PS3's starting in a week or so (atleast at FYE) when they have to clear out old inventory. Starting to look more realistic that the Slim will be $399.99.

nightsurge (on 15 August 2009)

I always told JEDE3 that he needed to stop and realize how vague and un-descriptive the 70% figure was. This article is a highly plausible and likely situation.

Squilliam (on 15 August 2009)

@ Procrastinato: Its all relative really. For example if you take a production run of 1000 consoles and then look at the average cost, it will be different if you average it out over 100,000 or 100,000,000 consoles. It all relates to both fixed and variable costs and how these scale with production. Its like the old manufacturers saying. "Sure we're losing money on every widget we make, but we'll make it up with volume!"

FonzGemini (on 14 August 2009)

Bad article.... it doesn't even prove anything

sauss (on 14 August 2009)

That is truly a shame... need to get my ps3 soon.

hanafuda (on 14 August 2009)

'Though Sony has depended on software profits to make up for its hardware losses during the PS3's entire lifespan, iSuppli believes that the company will reach a break-even point with manufacturing costs and even turn a profit in 2009.'.

Spedfrom (on 14 August 2009)

Well, to be fair, this entire article is based on "a source". So basically, someone we don't know and hasn't been referenced in the article spouting what they think is logical. Let's not precipitate ourselves. Unless Sony states what point in the PS3 production time the 70% cost cut refers to, we can only speculate. Maybe more precisely after GamesCom, but still only speculate.

darendt (on 14 August 2009)

That is why the PS3 will be around longer than the Wii and 360. It has the better hardware with a HDD that is upgradeable by the owner. This gives the lifespan a nice boost. I would say PS4 in 2014. If they do it, they will be making a lot of money at the back end of the life-cycle and devs will be very familiar with the coding.

sinha (on 14 August 2009)

Sullla says "until Sony's Playstation division starts posting black numbers, I'm going to assume the worst." .

Slimebeast (on 14 August 2009)

Good, finally we can put this stupis misconception of $250 manufacturing cost to rest thanks to this article. $350 to make a PS3 is much more logical, since it's common that console makers have a target of losing roughly $50 on every console made. And since the Slim is guaranteed to be sold for $299 starting from this Fall, it all makes perfect sense.

Wii_Master (on 14 August 2009)

i doubt this thing will ever be profitable what was sony thinking when building the ps3 that consumers will buy it because it is the successor of ps2???? like seriously $1200???

880user088 (on 14 August 2009)

....and it still eats money.....

ymeaga1n (on 14 August 2009)

The $252 seemed waaaaay to low. Blu-ray, cell processor? These things haven't really exploded in popularity lately that would make a cost cut like that seem plausible.

moondeep (on 14 August 2009)

So even after all these cost savings and switching to a slim model we're still supposed to believe that Sony just breaks even at the $350 price point? Wow, I knew Sony screwed up this generation, but the put themselves in a position where recover is hardly an option. My bet is that the PS4 will be considerably cheaper to produce at launch.

johnsobas (on 14 August 2009)

People should not read this article and assume it is or isn't profitable. The problem is that we don't know where the 70% number came from. Many people assumed it came from launch, this article is saying that it could have come from the beginning of the manufacturing process which nobody knows, could be a huge number potentially. The article has a good point but Sony's quote does not specify thus we don't know and I don't think people should pretend that they know.

GameAnalyser (on 14 August 2009)

so is this going to affect my PS3 way. Let them bleed money for the consumer's welfare.

nojustno (on 14 August 2009)

My god will this thing ever be profitable?

V-r0cK (on 14 August 2009)

Im sure the heads Sony headquarters are all having a good time making sure nobody really knows whats going on with the actual cost of the PS3 etc lol.

Stefan.De.Machtige (on 14 August 2009)

How 'reliable' is this source? Has he/she given accurate data before? If true: Damn Sony, what the hell were you smoking when building the PS3?

TheSource (on 14 August 2009)

Efficiencies in manufacturing just make the parts cheaper to produce. The $1200 figure assumes the iSupply figure for the launch manufacturing cost of PS3 is correct. If the Xbox 360 really was reduced by $400 from when they started making them to when they started selling them in November 2005 as our source claims. I don't think its unreasonable to think PS3 cost more to produce than Xbox 360 by a large margin. You have to remember too that Sony's game division had huge losses in the run up to the PS3 launch - and PSP was profitable, and the PS2 market was still pretty strong in 2006 and quite profitable from all the software royalties.

Sullla (on 14 August 2009)

What? A misleading statement from Sony's PR?! Surely not! [/sarcasm] Frankly, I'm tired of this endless discussion. We'll never know definitively one war or the other how much the PS3 costs to make. But until Sony's Playstation division starts posting black numbers, I'm going to assume the worst.

Procrastinato (on 14 August 2009)

I should clarify that, undoubtably the "first PS3" cost thousands to make, as did the first Wii, and the first X360. The real question is, at what point during the process was the 70% number in reference to? I kinda doubt it was in reference to an early R&D amount, personally. This was said to stockholders -- they were talking about full production, not some minute fraction of R&D PS3s.

Procrastinato (on 14 August 2009)

That $1150 - $1250 number sounds mighty suspicious. Kinda like someone figured "what amount, when multiplied by 0.3, would make numbers I can personally believe in" suspicious. My question is, why have we never heard such a number before, and how did Sony cut some $400 (~30%) off the price in the first couple months of manufacturing, such that the eventual $840 number was attained?

Gobias (on 14 August 2009)

Oh yeah, well my "source" told me the PS3 costs 26$ to manufacture, so take that. This doesn't hold much water without any credentials to the "source"

rendo (on 14 August 2009)

At least consumers will buy it no matter what price they sell it at. :P

johnsobas (on 14 August 2009)

this is exactly what i was talking about when i said we don't know where the 70% number came from. It's not that i believe this article, but the quote never said anything about the time frame of the 70% decrease. Nobody knows how much it cost to make the first PS3.

coilnightmare (on 14 August 2009)

Will it ever be profitable? Sometimes i think it's taking to long..

MDMAniac (on 14 August 2009)

Adieu price cut rumour? xD

Spedfrom (on 14 August 2009)

I've already said in that thread with predictions for GamesCom that PS3 Slim will debut at 399, so if this is true, I'm all set.

ultima (on 14 August 2009)

$1150-$1250 is freaking insane! Will PS3 ever become profitable?