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Teardown finds Sony closer to breakeven on PS3

The latest incarnation of Sony Corp.'s PlayStation 3 reduces hardware and manufacturing costs to near the breakeven point on the video game console, according to a teardown analysis performed by market research firm iSuppli Corp.

The new 120-Gbyte hard disk drive version of the PS3, released in September, carries a combined bill of materials and manufacturing/test cost of $336.27, according to iSuppli. At a new retail price of $299, the latest version comes closer to breaking even than any previous version of the product, iSuppi said.

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Nineball21123194d ago

Sony has done a really good job of bringing the price down on the PS3 without sacrificing the quality, imo.

I thought I'd read somewhere else that they were already break-even on the PS3, but I guess not.

rekonizakilla3194d ago

Not sure about EU, but those territories might be profitable.

nycredude3194d ago (Edited 3194d ago )

Does this isuppli site take in account that Sony orders these parts by the hundred of thousands? I am sure Sony gets these parts cheaper or has partners who manufacture them. Just saying they may be a bit off with their calculations.

@piratethom

that was what I was thinking. It's very likely they are breaking even now and I wouldn't be surprised if they make a small profit.

PirateThom3194d ago

I think the prices reflect the cost if you were to buy the parts to make a PS3. I don't think they're wholesale or bulk adjusted, so it's probably not even that big a difference between cost to make and RRP.

Anon19743193d ago (Edited 3193d ago )

I remember reading in a financial report from September where an analyst was lowering his forecast on Microsoft stock in general that Microsoft was losing money on the 360 at current price points. It's ultimately a small part of MS's overall business, but you have to wonder. MS Entertainment isn't the most transparent division in general. It's hard to tell what's making money and what's losing it when you look at the financial statements. Anyone have a recent link for the 360?

Edit: I've come to the conclusion that these forums are shadowed by the Taliban. You always see disagrees, no matter what is said, so I can only assume that it's the free exchange of ideas in these forums that the Taliban are disagreeing with, or maybe just gamer debate in general. It's hard to tell, as you rarely see an explanation as to why someone disagrees. Must be the Taliban. Or my disagree shadows. It's one of those two.

Edit, Edit: Unless my disagree shadows are Taliban.

3rd Edit: It's not the disagree itself, it's just I don't understand why people disagree but don't explain why? Aren't these forums for discussion? There's no discussion involved in simply jamming the disagree button. You hear that, Taliban! Stop cowering behind the disagree button!

siyrobbo3193d ago

Why are people so bothered about getting disagrees on this site? I always like to add an extra disagree to the moaners, lol

if you agree with me, press disagree

Immortal Kaim3193d ago

@ ppl above. I assume that the market research done by this company would take into account bulk orders and bulk manufacturing costs, it isn't a very effective analysis if that isn't the case.

@ Darkride. Take this with a grain of salt because I can't find the link atm, but I swear I read somewhere that the 360 cost around $6 more to manufacture than the retail price, this could have been before the price drop? Will have another quick browse...

Anon19743193d ago (Edited 3193d ago )

But I can't remember. I was frankly surprised to hear that the 360 was still sold at a loss but I never could find anything recent about it.

Immortal Kaim3193d ago

Here is an interesting link to a report by (incidentally) the same research group... Now these figures are from November 2006, but they give an interesting analysis of Microsoft's 20gb unit which at the time was retailing for $399 US...There was actually a $75 profit on each unit sold, but taking into account freight, retail partners costs etc, they would have been making a small profit or breaking even...

http://www.xbitlabs.com/new...

Now that was Nov 2006, so three years on looking at the Elite model at $299 US, could they have reduced costs by another $100? Well looking at Sony's figures they have reduced total cost of producing a unit by 40% in 3 years. Giving some leeway for the bigger HDD, Microsoft only needed to reduce their costs by 10% over the same 3 year period to break even, something you would think would be easily achievable?

Thoughts Darkride?

Halo3 MLG Pro3193d ago (Edited 3193d ago )

Without sacrificing the quality? You do realize that the first ps3 was able to play every ps2 game and now that's all gone, right? I guess you forgot that.

And it's common knowledge that the 360 has been profiting for quite some time with each console sold. Cmon man, get current with the news.

Anon19743193d ago (Edited 3193d ago )

That's why I was surprised when those analysts (Caris & Co.) commented that Microsoft were taking losses on the 360 still (despite Halo3 MLG Pro claims that MS making a profit is "common knowledge" I guess financial analysts commenting on MS's stock don't bother to check these type of things before offering their recommendations).

I would have thought that the 360's costs would have come down and that's why Microsoft cut the price. But, if those analysts are correct, costs didn't come down on the 360 like they have with the PS3. Mind you, PS3 tech was pretty new, and newer tech tends to drop in price faster than old tech which will drop in price to a point.

I thought something was up just after the 360's price cut. When you looked at the 6 months after their price cut, sales were up, revenue was the same year over year (actually, up a little) but profit plummeted 130% versus the same period the year before. To me, the only way sales could be up, revenue could be the same but profits tank would be that the 360 was selling at a loss. When I put forward that theory on the forums I was virtually lynched, despite no one offering an alternate theory.

It looks like those analysts validated my hypothesis, but it would still be interesting to see a breakdown that's a little more current.

Immortal Kaim3193d ago

Yeah, unfortunately you can't openly discuss many issues on N4G without people pulling the 'fanboy card'.

The biggest problem when looking at the Xbox divisions revenue is that it's lumped into the Entertainment and Devices division. Now we both know the Zune is part of this division and often skews the financial reports to the point of the 360's revenue being indistinguishable from the rest of the products in the division...

I'm having a look now to see if I can see this downward trend you mentioned...Any links to make it easier for me? :)

Halo3 MLG Pro3193d ago

Again, I said it's common knowledge that *THE GAMING DIVISION* is profiting greatly for quiet some time. The 360 has been profiting with each console sold for awhile now. Their are other factors that can bring down the Entertainment division or Microsoft's stock but we're talking gaming here.

Anon19743193d ago

It wasn't reported on but you can see the information on Microsoft's own quarterly updates. I know that there's many things that make up Microsoft's Entertainment division, but there hadn't been any major shakeups during that period or before that period, and revenue was up slightly for those six months year over year, which is why that $400 million or so drop in profit for that six months right after the 360 price cut really stood out for me.

You could easily say that "Well sure the profit went down - the 360 price was lowered so they were taking in less money," and normally I would agree, except sales was up, revenue was up, but profit was down. You would expect profit to be down, revenue in the price cut scenario - but more revenue, more sales, 130% less profit...and immediately after the price cut, seems to indicate the 360 is being sold at a loss like those analysts said.

As for Halo's comments above me, Microsoft has never claimed that the "Games" division is profitable. Microsoft Entertainment is responsible for the Xbox and the games division isn't reported on it's own. The Xbox makes up the bulk of the revenue for the Entertainment division so when it sees a drop in profit of 130% in 2 quarters immediately after a massive price cut in their main product, you can bet the 360 is behind it. Money spent on the 360 numbers in the billions. Something like Zune, at it's peak was only generating approx 100 million over the holiday quarter.

And, when Microsoft announced layoffs earlier this year, the bulk of those hit the gaming side of things. These aren't what you do to a division that's operating just fine. If you can find a link to proof that Microsoft's gaming division is "profiting greatly" I'd be interested to see it. Based on their financial reports to me it looks like they're still about 2.5 billion in the hole since the 360 launched, and only generating approx $100-$150 million each fiscal year at the moment. If you think taking 20 years at this rate to break even equals "profiting greatly" then I'd love to be your financial advisor. :)

commodore643193d ago (Edited 3193d ago )

I find it interesting that this thread has unfortunately gone completely off-topic.
Where are the mods, I wonder?
I was forced to report several of the above comments as 'off-topic', due to the apparent high-jacking of thread into fanboy rhetoric.

The original story was about the ongoing ps3 losses, so let's try to stay on topic.

So then, without further ado, with regard to the article of this story, it's disappointing to see the ps3 take an indisputable $33 loss on each console.

While Sony is to be congratulated for selling +/- 13 mill consoles this year, we also need to put this into its proper financial context.
13,000,000 consoles, multiplied by $33 loss each, results in a 2009 hardware loss of $429,000,000.
Wow... just wow.

This means Sony would need PROFITS (not revenue) on software and royalties in excess of $429,000,000 merely to break even on hardware losses, just for 2009.
What's more, this doesn't even begin to address the documented $4.7 billion overall ps3 loss so far.

Having said that, I am genuinely happy for Sony to have achieved a reduction in losses on each console sold.
But, really, is it too late?
This is year FOUR now, for ps3, and the proven, documented ps3 losses are astronomical, by anyone's standards.

With regard to overall profitability, Kaz Hirai stated several months ago that, overall, the software profits covered the hardware losses, that much is true.
However, he did not supply any kind of numerical corroborating evidence, for analysts to verify.
Moreover, the margin of hardware losses for 2009 has increased concurrently as more loss-making skus were sold.
Also to consider is the fact that his comment was made BEFORE the price cut, negating the validity of the comment somewhat.

In light of these consideration,it would therefore be prudent and conservative to judge Kaz's comments as being woefully out of date with current events.

Thus, we have to conclude that the ps3 is probably still making losses overall, in 2009, all things considered.
A scary thought.

Of course, if anyone can prove me wrong, then please contribute your thoughts.
Please note though, I am hoping for some intelligent debate here, on ps3 costings.
Fanboys, trolls and off-topic rants are not required.

Guido3193d ago

Typical 360 fanboy.... Sacrificing features does not = sacrificing quality. Sony offers us a console that does not die every few months and thus their console = quality. They take a loss so we can gain. You can't say that for MS or Nintendo so put your fanboy goggles away and come back to reality.

The Maxx3193d ago

I agree with you. However we are forgetting about the "Trojan Horse" that was implemented into the PS3. You know...the Blu-ray player. Sony took a gamble to add the Blu-Ray player and force it into consumers homes. Now we all know that there is about 33 million blu-ray players in the marked, and we all know Sony makes money off of Blu-ray.

So yes I agree with your analysis, but there are other numbers behind the door that i think compensate or "cusion" the deficit that the PS3 partakes on every sale.

commodore643192d ago

@ the maxx

I welcome your reply.
You may have a point about the 'trojan horse' bluray effect.

However,
I wonder if you have some verifiable figures that show how bluray profits have offset the 'ps3 trojan horse bluray' overall losses?

My feeling is that the bluray revenue *may* help sony's bottom line, but even when you include bluray profits/losses, it may do little to improve the ps3 overall ongoing losses.

Of course, without official numbers, we won't know for certain.

The Maxx3192d ago

No you are absolutely right. We don't know what the numbers are. Whether the revenue made by Blu-Ray is combined into the same department as the PS3's or if it is with their movie revenues.

The point I was making was SOny may have considered taking the loss knowing/guessing the returns from Blu-ray. Blu-ray being the dominant format now may be "cushioning" the loss of the PS3 but without any numbers available, we really don't know how much or less Blu-ray being added into the PS3 has helped the PS3.

+ Show (15) more repliesLast reply 3192d ago
Nathan Drake23194d ago

maybe they make profit on ps3 slim 250GB.its 50$ more expensive and i dont think that 130GB cost 50$.

rekonizakilla3194d ago

i payed + £400 for my launch version and I still think it was a good deal.

PirateThom3194d ago

I paid £400 at launch (plus another £99 for a replacement) and, considering the use and the fact I've spent maybe £2000 on games and maybe the same on Blu-ray, I can't really complain. I would HAPPILY pay £500 again if I knew I would get the use out of the console, games, Blu-ray, streaming video from my hard drive, music.

Honestly, the thing was a bargain... I judge the price of a console against their use and, honestly, the PS3 has provided the best price to use ratio, and the Wii, DS, 360 and PSP have all exceeded similar barriers.

redsquad3193d ago

I haven't regretted paying launch price for my PS3 for one second.
Funny how the expression "you get what you pay for" applies to XBL but not the PS3, which was 'too expensive' for so many.

gtamike1233194d ago

It's good that the Fail Rate is not as high as Xbox 360. ($1 bill loss)

Oner3193d ago (Edited 3193d ago )

@ gtamike123 ~ That's 1 Billion and counting since over a year ago...it's more than that now.

@ Arnon ~ And the PlayStation brand generated $5.1 billion in the U.S. ALONE in 2009 ~ http://www.psu.com/Sony--Pl...

Arnon3193d ago

Yeah that's awesome. But that's the Playstation brand combined. I'm being serious on it being awesome lol.

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