PlayStation 3 estimated to cost $800 per unit [Update 2]

by Conrad Quilty-Harper { Feb 18th 2006 at 5:15AM }

A team over at the investment firm Merrill Lynch took the liberty of breaking down the component costs of the PlayStation 3, concluding that the PS3 will cost Sony $900 per unit at launch. The figures which are based upon estimates and predictions, show that the lion's share of the parts costs come from the Cell processor and Blu-Ray drive, which total $580 alone. Fortunately for Sony, the firm has also estimated that the console's cost after 3 years could drop to $320.

What these figures show is that the fate of Sony's console lies in the circuits of two components: the Cell processor and the Blu-Ray drive. It's in Sony's interest to make sure that Blu-Ray drives and Cell chips are sold in vast quantities, which will lower prices and limit the amount of money that Sony will lose on each console. Of course we still don't know how much Sony will be willing to subsidize PS3s. Previous rumors have hinted that the PS3 will launch at $500. In other words, a $400 loss on each console.

For a little perspective, lets take a look at a similar example in the same industry, the Xbox 360. Earlier estimates suggested that the Xbox 360 costs $715 to make which means Microsoft is willing to lose around $350 per console sale based on a $299-399 retail price. If Sony wants to remain competitive with Microsoft (does it?) and rival the Xbox 360's price, it could lose as much as $500-600 on each PS3. Finally, it's worth noting that these companies have money to lose: as Yahoo finance indicates, Microsoft and Sony both have mountains of cash at their disposal. Although Microsoft happens to have a lot more.

[Warning: PDF link. Via engadget, thanks to everyone who sent this in!]

[Update: fixed incorrect statement regarding finances of Microsoft and Sony.]

[Update 2: apparently Merrill Lynch didn't have their calculator handy as their figures for the PS3 add up to $800, not $900 as shown.]

Tags: money, Playstation 3, Playstation3, PS3

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Reader Comments (Page 1 of 1)

gizmondo_hater @ Feb 18th 2006 5:22AM

$900, that's about �550
More than twice the xbox 360!!!!!!!!!!!!!!!
And sony still lose money!!!!!!!!!!!!!!!!!!

Daz @ Feb 18th 2006 5:28AM

The same people who said this: http://www.engadget.com/2005/06/30/sonys-gonna-lose-100-on-each-playstation-3/ ?

gizmondo_hater @ Feb 18th 2006 5:34AM

omg you're right.

first she predicts $400 with sony losing $94 then the Ps3 costing a manufacturing price of $900, utter crap.

ByeLaw @ Feb 18th 2006 5:41AM

Absolute trash... They should be ashamed of themselves releasing obviously badly thought out analysis like this.

Check out:
http://www.engadget.com/2006/02/18/playstation-3-costs-900-sez-merrill-lynch-mob/#comments
Post 25... says it all better than I could.

KingKong @ Feb 18th 2006 6:13AM

Lol, their numbers literally don't add up! Their own numbers add up to $800, not $900. What hogwash.

Olumide Edu @ Feb 18th 2006 6:29AM

You are forgetting the fact that Microsoft hopes to start making a profit by June this year. That means that the 360 estimates cannot be anywhere in the same region of price as those estimates... estimate. :p

I don't know about the PS3 though.

Armin @ Feb 18th 2006 6:33AM

I don't think it will matter that much for Sony if they pull off what MS did (huge deficit in the Xbox).

They do loose money when they sell a console, but the fees from game developers evens that our easily.

Doesn't apply for Nintendo, they know how to make money of the consoles :)

Kel @ Feb 18th 2006 7:21AM

I think Sony have gotten themselves into a real mess by aiming above their stations. They have designed a console of immense power that's difficult and expensive to develop for and that will cost a bomb to produce.

It's entirely Sony's fault, but Microsoft is going to win this generation.

Alex K. @ Feb 18th 2006 8:24AM

It's so funny, and strange, Nintendo manages to actually profit on each console sold, which is why they've never had a red fiscal year since they launched the NES.

You have to admit, in the graphical department, the gamecube certainly kept up, but Nintendo always made at least $5 in profits on each machine. And it was priced $100 less than the competition. (although we all must admit, larger discs would have been nice)

If the Revolution can even slightly keep up with the competition, Nintendo is going to be reaping the rewards at not losing $300 or more per console.

Derek Boni @ Feb 18th 2006 8:29AM

I think Sony is Marketing this PS3 in a way that will make a frinzy worse than the Xbox 360 and much worse then the PS2 realease. I'm sure we'll see the PS3 in stores for Christmas 2006 at a some what reasonable price. If I was you, I would try and get my paws on as many as you can upon realease and sell them on Ebay...I'm sure you could make a small fortune;)

Ejab @ Feb 18th 2006 8:57AM

To make affordable, they will have to water down the most expensive part(the blu-ray drive)and and that will be bad since the drive's architecture is extremely complecated to make we may have even more disc read errors this gen with the ps3.

Vincenzo @ Feb 18th 2006 9:22AM

This is just trash.

Isurus @ Feb 18th 2006 9:26AM

Joystiq, quoting revenue figures has nothing to do with how much cash a company has to burn. You need to quote net income and cash reserves to have something to compare to. In your quote it appears that Sony actually has more money to burn than MS but, in actuallity, the net income of MS is much higher than that of Sony and they have more surplus to burn through. I wouldn't consider Sony in a financial position that allows them to spend whatever they would like.

JuN @ Feb 18th 2006 9:40AM

The pricing on the GPU and the bluray drive seem odd to me.. anyone else??? It just doesn't seem balanced... it should cost more for the GPU since they pay Nvidia to use the design and still have to make it; and could be less for the bluray drive since they made the format. in the end though, they should still be able to logically take a big hit (don't know about 6-700 a system BIG, but...) because it won't only be game royalties but also winning the next gen disc format war and all the money that will come from that. that's where i see the real gold at the end of sony's rainbow - Bluray movies and everyone use it in PCs, hometheaters, and the PS3

Marcus @ Feb 18th 2006 9:46AM

I believe the PS3 will infact cost this much to produce but to sell it for anymore than $500 would be like putting the crown on Microsofts head. In order for them to even be close to not losing a fortune on this they would have to do some major restructuring. Otherwise, Sony will be left in the dust (at least early on) this generation. I think Microsoft will win this round with Nintendo coming in at a close second. The only people that will buy PS3 at launch no matter what the price would be the media freaks who need it just to say they have it. What I think Sony needs to do exactly is to get rid of some of the small features like the 6 USB ports (2 would be enough), the Gigabit ethernet ports (if it is so much better than 360, why does it even have wired connections), and the dual HDMI ports (who in the world has two 1080p tvs right beside each other). When you look at it in the long run it will add up if Sony takes of some of these features.

P.S. Wouldn't it still be possible to have dual HD output to two TVs even if you only have one HDMI port. There is still the other standard connection that has been on Playstation since the beginning.

Oncnawan @ Feb 18th 2006 10:20AM

Conrad, what is this?

"Finally, it's worth noting that these companies have money to lose: Microsoft's revenue reached $38 billion in 2006, whilst Sony topped $70 billion in 2004."

Revenue is not money available to lose. You should be quoting profit figures, not revenue. Furthermore, you cite Microsoft's figures for 2006? Are you saying that they have topped $38 billion in revenues in January and February alone? Why are you citing Sony's 2004 figures? Give us profit figures for 2005 for both companies; give us something that has some relevance to your statement.

whuh? @ Feb 18th 2006 10:33AM

"whilst Sony topped $70 billion in 2004."

According to CNN, Sony
revenue is $ 66.9 B for 2005 with no net income. Microsoft have $39.8 B revenue but a total of $ 12.3 B net income for 2005.

Ken @ Feb 18th 2006 10:38AM

Sony's 2005-2006 Net Income:
93 million dollar LOSS.

http://www.sony.net/SonyInfo/News/Press/200509/05-052E/

Based on the conversion of the 10 billion yen loss at 107 to the dollar.

Microsoft's Net income for 2005:
$12,254,000,000 BILLION dollars.

http://finance.yahoo.com/q/is?s=MSFT&annual
Notice, the yahoo link is in thousands of dollars.

abhishek @ Feb 18th 2006 10:42AM

to,
whoever it may concern...
respected sir its my humble request to you to plz convey my message to the sony company.
I am a resident of india and believe me man i just cannot live without the playstation 3 see it makes no difference to you changing the prices of the ps3 from 500$ to 900$ or whatever but sir it does make a lot of difference to us i mean to me even if u increase 50$ u see the currency of india as compared to yours is very low and so in our country in costs us very high.
My basic needs of life are food, clothing, shelter, and above all the playstation 3.even if u want to shoot up the price or decrease it by no matter what i request you (I MEAN THE SONY ENTERTAINMENT COMPANY) that can u plz give me a ps3 by about 400$ or so I promise i wont tell this to anybody u see thge problem is that i dont want to lose and stop doing the one last thing i really love in this world that is gaming and that too only on my playstation 3 I mean it ok and please i have said to give me if it is possible, or else as i read on the net i will have to wait for three long years to buy it at 320$ or whatever
PLEASE DO CONSIDER MY REQUEST AND PLEASE WHOEVER IS GOING TO RECIEVE THIS MESSAGE FIRST PLEASE PLEASE FORWARD IT TO THE SONY ENTERTAINMENT COMPANY, MY DREAM IS TO WORK IN THE SONY ENTERTAINMENT COMPANY AS A GAMER OR AS A DESIGNER OR WHAT EVER POST I MAY GET RIGHT NOW I AM DOING I.T. ENGINEERING AND AM A LOT INTERESTED IN ANIMATION BUT ONLY WITH MY DREAM COMPANY "SONY" IF THERE IS ANYTHING LIKE TRAINING COURSES THAT YOU GIVE AND HIRE PEOPLE IN YOUR COMPANY(ONLY THE VIDEO GAME SECTION I MEAN) THEN PLZ SIR I AM READY TO DO IT I AM READY TO WORK FOR THE FIRST 10 YEARS WITH YOU FOR FREE I MEAN WITHOUT BEING PAID, YOU WILL JUST HAVE TO SPEND FOR MY FOOD, CLOTHING AND RESIDENCE I REALLY MEAN IT GAMING IS IN MY BLOOD AND PLAYSTATION IS THE HEART THAT KEPS IT ALIVE FOREVER I KNOW THIS MAY SOUND AS A PIECE OF JUNK TO YOU BUT ITS SONY ITSELF WHO SAID THAT IF U HAVE A DREAM NO MATTER WHAT GO FOR IT and so i did. thank you my e mail id is abhishek9000@sify.com
If i really am made to be a part of sony in future and be a reason for its success than i think i may get your response and yes plz IF RIGHT NOW I AM NOT FIR OR NOT FULLY QUALIFIED TO YOUR REQUIREMENTS THEN PLZ LET ME KNOW I AM READY TO DO AND LEARN EACH AND EVERYTHING YOU SAY OK HOPE YOU MAY REPLY and even if u dont remember i will wait for 3 yrs for MY OWN PLAYSTATION 3 !!!!!!!!

Extracheeze @ Feb 18th 2006 11:02AM

Was the last sentence of the article even relevant to the topic of the article?

Gareth @ Feb 18th 2006 11:28AM

"Microsoft's revenue reached $38 billion in 2006"

Isn't it only February at the moment?

kev @ Feb 18th 2006 11:39AM

Dear Daz,
That article was written in June 2005. A lot can change in almost 8 months.

Brian @ Feb 18th 2006 11:46AM

Give away the razor and sell the blades? I know this business model is used pretty much exclusively to sell video game consoles, but I wouldn't be suprised if the games come out at $60-70 on blu-ray media. If the 360 is more expensive to develop for, then the PS3 is going to be even worse. We won't be seeing great value $20 classics for the PS3 anytime soon. So, if the PS3 costs Sony $900 and they make $30 of the $60-70 per game, and they sell it for $400. They need to have an attach rate of probably 10 games and 10-20 movies to break even just on the hardware. That doesn't take into account the millions and millions that Sony will need to spend to market this device. The PS3 might have a lot of buzz going for it now, but don't expect it to be a smash hit right away. Sony can't afford to make more than 2 million of them this first year without going a billion dollars in debt.

If Microsoft is clever, they will not have Halo 3 come out this year, they will have a huge price drop and a bunch of great games come out by the holidays. If Microsoft does that, it would hit the PS3 at it's weak point: price. I could see them selling 10 million 360's this year if they just manage to drop the price and make the 360 widely available to everybody.

Captain Obvious @ Feb 18th 2006 11:49AM

Sony's Fiscal Year Ends March 31, as of March 2005
Sony's Total Revenue was 66.5B (down from 2004)
Gross Profit was 15.5B (down from 2004)
Net Income was 1.1B (up from 2004)
Total Cash 3.78B

Microsoft's Fiscal Year Ends June 30, as of June 2005
Microsoft's Total Revenue was 39.7B (up from 2004)
Gross Profit was 33.5B (up from 2004)
Net Income was 12.2B (up from 2004)
Total Cash 34.70B

(Source: Yahoo Finance)

Both companies can sustain losses, but Microsoft can sustain larger losses for much longer. Sony is generating far more revenue but for less profit. Sony's net income and cash are far, far lower than Microsoft. Sony desparately needs the PS3 to be a success.

Arch @ Feb 18th 2006 12:28PM

The 360 costs 720$ to make people! it was on this site! now add a bluray drive and a cell processor. thats pretty damn close to 900$ if not more. you guys are fools not to realize that its the truth, by doing the math yourselves.

and yes i know its sonys product and it costs less to make. blah blah blah. xbox 360=720$ to make
PS3= 720$ +bluray drive + cell processor.

Conrad Quilty-Harper @ Feb 18th 2006 12:38PM

Sorry guys, not sure what I was talking about with those revenue figures.

Anyway, I've fixed it now.

Eric @ Feb 18th 2006 12:50PM

It always makes you feel good to read the disclaimer "Merrill Lynch...may have a conflict of interest that could affect the objectivity of this report."

Wall Street is an utter sham. You don't have to take it from me. Go read Mark Cuban's financial blogs if interested http://www.blogmaverick.com/

I guess ML will hire anyone these days.
1 - As noted before their cost numbers add up to $800, not $900
2 - They only correctly write "Xbox" once for about a dozen or more "xBox"s
3 - They aren't much better with the PS3 - usually referred to as the PS III and even the PSX III
4 - They state "...delays have surfaced on the NVIDIA-designed RSX", yet, Thursday Nvidia said the RSX was final
5 - They say "The Blu-Ray drive...looks expensive at an estimated $350, and Sony will not be able to leverage off additional Blu-Ray shipments...standard is still so new." Really? A 1x or 2x BD read-only drive for $350 manufacturer's price? And it'll be the only BD player Sony will ship?
6 - They note difficulty in producing the Cell. However, Sony took that into concideration by de-activating one of the SPEs. So if there's a faulty SPE the entire Cell won't be thrown away.

With is the shift to 65nm manufacturing in 2007, limiting the number units produced until '07 would reduce losses. However, that's a VERY short-sighted analysis. The analysis only speak towards gaming hardware & software impacts. The PS3 is much more than that to Sony - they expect the PS3 will drive adoption of Blu-Ray where there's more royalty money than gaming. Granted Sony could save cash by limiting production until '07, but they can't afford to loose that much ground to both the 360 AND HD-DVD. The long-term benefit of having PS3 with Blu-Ray on the market in force against HD-DVD will greatly outweigh the high short term production costs. Not to mention delaying the revenue chains of their online service.

Nigerian Price @ Feb 18th 2006 1:29PM

HELLO SONY!

I AM THE PRINCE OF AN AFRICAN NATION AND MY WIFE HAS BEEN KIDNAPPED. I NEED A PLAYSTATION 3 TO RESCUE HER FROM THE EVIL MAN'S CLUTCHES.

PLEASE SEND THE PLAYSTATION 3 TO
435 ALMADIA JOKA, NIGERA.

Lone Star @ Feb 18th 2006 2:08PM

How much of cash is each company willing to lose on its own system? I would guess the company that has more of a stake in the next-generation console fight would be willing to spend more (proportional to their stash of cash.)

Jago @ Feb 18th 2006 2:12PM

Ah great...just what we need...another analyst "trying" to sound smart and make their projections on the video game market.

I wonder how many uninformed people (and "dense" Nintendo/Xbox 360 fanboys) will start saying that the PS3 will cost $800 when it comes out.

I currently have my name on a "call list" at a Gamestop and if the retail price is above $400 AND if the accessories are as overpriced as the X360's...then the only thing that will get me to buy it at launch is some damn good games.

ME @ Feb 18th 2006 2:48PM

They say the RSX costs $70, right? Well the RSX is over 300 million transistors. The Cell is only 234 million transistors. Assume the price for the RSX is correct thats about 23-24 cents per million transistors. Also assume the cost per million transistors is about the same between RSX and Cell and you get a total cost for the Cell of $54.60. So I guess they are only $175 off!

dsub @ Feb 18th 2006 3:29PM

I don't know who to believe when it comes to these analysts. Personally, I don't see how the PS3 can cost anything near the price of the 360. $715-800 is only $85 difference. It's tough to predict this stuff because you don't have real numbers, just estimations. If it really does only cost sony $800 to make the PS3 who knows how much it will cost. My guess is there not going to be willing to take as big of a hit on this thing as MS is. My guess...still Retail for $500, but without an HDD, which they will sell separately so they can make a profit on it for $75-150 depending on the size. At least 40GB at most 80GB. I think late this summer MS will roll out some larger HDD's for the 360 as well. The rumors I hear say the 360 is supposed to get an 80GB HDD soon. Who knows though.

MarkTAW @ Feb 18th 2006 3:54PM

"They have designed a console of immense power that's difficult and expensive to develop for and that will cost a bomb to produce."

The same could have been said for the PS2. If you forget the arguments from back then it was "Really expensive chip that Sony developed vs. household computer parts that Microsoft slapped together."

"Both companies can sustain losses, but Microsoft can sustain larger losses for much longer."

But their stock holders would never allow them to do that. Corporations are patholigically profit driven, and thanks to the internet, that's as true in the short term as it is in the long term. A few quarters of losses and - well, you see what kind of gloom & doom predictions people make even over the most trivial things.

Joe @ Feb 18th 2006 5:45PM

eric i'm totally with you on this. and i've tried explaining it to many people in the past. to sony..the ps3 is more than just a video game machine, and if it were just video games, i'd say there was no way they'd release this year knowing theyll lose this much money. but its gonna get sold at a loss so they can push the blu ray format...so they can continue their dominance in the video game sector...and maybe as a digital hub..video/game sales over the net? who knows

Stuka @ Feb 18th 2006 5:45PM

Directed to #30:

While more transistors usually means higher price, the price of the Cell chip will be much higher than the RSX initially because of they still need to recoup the cost of development of the Cell chip seeing as it's so new. The RSX on the other hand is basically a modified 7800GTX which has been on the market for a while now and has less development cost to recover. Not to mention the Cell was probably quite a bit more to develop in the first place.

On top of that, nVidia probably gave Sony a good deal on the RSX licensing to secure the bulk purchases Sony will be making (especially when ATI is doing both the 360 and Revolution already). Sony can't really give themselves a break on the Cell chip because they either lose money coming or going in such a scenario.

The numbers for the Blu-Ray drive seem a little inflated, especially when you consider Sony can use licensing of Blu-Ray technology to all the movie companies to help subsidize the cost of Blu-Ray.

I would say it's fair to assume Sony will lose about as much, maybe a little more than MS does per console, at least initially.

If I was an investor, I'd be putting my money behind MS before Sony though. MS still has a strangle hold on the majority of the market in its primary field, whereas Sony really only is making a profit of late off of PS2 sales and it's movie studios. And the movie branch just went back into the red last year.

Dennis Morgan @ Feb 18th 2006 8:25PM

OH MY FREAKING GOD
why do people ALWAYS fall for this "losing XX$ per console" They don't lose crap! electronics are CHEAP
they aren't going to lose $400 let alone 40 cents, it's just a marketing gimmick

Alan Greenspan's Accountant @ Feb 18th 2006 9:07PM

I don't get why joystiq had to add the update slam about the adding error, while it adds up to $800, the article blatently has N/A next to the HDD, which will probably sell for $90 like MS is doing...

there's your $900..geez

Jago @ Feb 18th 2006 9:10PM

"They have designed a console of immense power that's difficult and expensive to develop for and that will cost a bomb to produce."

Expensive to develop for? Yes.

Difficult to develop on? No...there has been quite a few stories from developers stating that the PS3 is easier to work on then the PS2.

Captain Obvious @ Feb 18th 2006 9:15PM

According to Business Week back in December...

http://www.businessweek.com/technology/content/dec2005/tc20051222_242937.htm?campaign_id=topStories_ssi_5

Sony is expected to post an 86 million dollar loss at their fiscal year end coming up this March 2006

Development costs of the Cell, are 400 million are shared by IBM, Toshiba (hello maker of HD DVD?) and Sony.

Curiously, developers were working with under-powered development kits and without the final graphics chip from nVidia. Hmm...

But the same article does mention that Sony is expected to sell 12 million PS3s in the first year and reach 200 Million (!!! Twice the number of PS/2s??) in five years according to Envisioneering Group.

play free games @ Feb 19th 2006 12:14AM

It looks like the dvr functions are not going to be included in the base model. It may be a option along with the hard drive. But Sony is not going to include it if the PS3 costs this much and people buy a couple of games and use it as a tivo. This is going to be a games machine.

Eliot Hence @ Feb 19th 2006 6:05PM

This is very difficult to figure out. Should Sony make the PS3 overpriced so they wont lose much money, but fewer people buy it, or should they put it at a reasonable price and lost at least $200-$400 a console? It is a risky move because the Blu-Ray player by Toshiba is priced at $999. I see it no reason to upgrade to Blu-Ray when DVD's has just recently taken over the VHS format. Consider Blu-Ray in about 15 to 20 years, it is just too early and expensive for one. Also Sony has not been doing good with the UMD format because it is overpriced and does less things a DVD movie can. All the reason to invest my hard-earned cash into a cheaper system aka the Revolution and still enjoy games, retro games, online play, etc.