Report: PS5 Manufacturing Cost Pushed Up to Around $450 - NewsWilliam D'Angelo , posted on 01 March 2020 / 4,497 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 firstname.lastname@example.org or on Twitter @TrunksWD.