PS3 Now Costs $448 to Manufacture

Kris Erickson • Dec 23, 2008 • Comments (1)

When the Sony Playstation 3 launched in 2006, it was among a select group of the most expensive video game devices in history. At a whopping $599, it was rivaled only by the Neo Geo arcade console which retailed for a record-breaking $649 back in 1990. Few could afford the 60GB Sony unit at launch, but even at that price they were still getting a great deal. Analysts at iSuppli estimated that those early PS3 machines cost Sony a hefty $840 to produce. A common business model in the video game industry is for console manufacturers to take a loss on hardware sales hoping to recoup their investment through the sale of software and accessories. Over time, the price of manufacturing also declines, making units cheaper to produce.

Now, two years after launch, where does Sony stand in terms of manufacturing costs? The company is faring slightly better, with costs of some of the most expensive internal components of the PS3 dropping. Analysts at iSuppli now estimate that the 80GB PS3 costs around $448 to build. The machine retails for $399 US dollars, meaning that Sony is still taking a loss on every unit sold, although not as heavily as before.

Where has Sony managed to reduce costs? The removal of hardware backwards compatibility likely has something to do with it. Interestingly, the 2008 PS3 has 30% fewer parts in it than the original launch model. This is because Sony has stripped some functions (like BC) and combined others on a single chip. The movement to a 65 nm manufacturing process also makes the core components of the PS3, the cell and RSX, cheaper to produce. The researchers estimate that the both chips now cost about half what they did when they were first introduced.

Will Sony be able to turn a profit on hardware in 2009? Unlikely. Stiff pricing competition from rivals Microsoft and Nintendo mean that the company will be forced to further reduce retail prices this year. Profitability is likely to remain elusive for a while, although new manufacturing techniques and designs will likely reduce costs that get passed on to the consumer.