$900 component-cost for Sony PlayStation 3 forces delayed US launch?

[Bob Crabtree]

The high cost to make the PlayStation 3 games console - around $900 per unit, initially, for parts alone - could force Sony to delay the US launch until components become more affordable, something that could take three month or even six, according to a report by financial analyst Merrill Lynch.

And that could mean the PS3 missing its expected Q3, 2006 US launch and not even being in US stores for Christmas 2006. Where such a delay would leave the UK launch date is anyone's guess.

More in this HEXUS.headline.

The Merrill Lynch report actually ups and says, "It’s now clear that the box is prohibitively expensive to make" but is all this just scare-mongering or a realistic appraisal. Your thoughts welcome, as always.

[Lord Kordir]

all about the hype...Good old Sony! They are starting to bore me now though.

[sawyen]

I wouldnt have thought that an X360 would cost just £200 odd for the core system... Because in actuality they're more like £500 where Big Bill and his Gate's load of money will swallow the extra £300 to allow for the X360 launch... they're bound to gain those back for selling their games at £35 a piece.. not to mention Xbox LIVE..

It woudnt be next gen if the technology that built it cost as cheap as dirt.. There will be compromises...

I would have guessed Microsoft might have a hand in this... Making the competition look silly or making their competition's upcoming product sound horrendously priced seemed pretty Microsoft to me...

[alsenior]

they're bound to gain those back for selling their games at £35 a piece..

where have you been looking there more like £50 a piece

[MD]

I bought two games in tesco yesterday, £39.99 each, play.com have them for the same.

Its true though, the consoles do require the manufacturer to swallow cost, but given the cost of developing games is going up you have to factor in this is most likely driven by production and design costs of the actual system,

matt.

[smtkr]

Meh, I'm waiting for the Revolution. I doubt Nintendo will have to swallow such a large manufacturing cost. If developers want my business next generation, they have to include Nintendo in their plans. I buy the hype (a rarity for me). I don't need to waste 100+ hours every time Final Fantasy comes out. If it doesn't come to the revo, I won't play FF anymore. I hate Sony.

[autopilot]

Missing Xmas would be completely insane, i would have thought they would have much more to lose by missing those sales and losing even more of the market to Microsoft than launching it later when componant costs might have come down.

I reckon it's just more hype and marketing propaganda too, how can this have come as a suprise to them? They will have had the costs nailed months ago before settling on a release date. Sounds a little desparate to me.

[Bob Crabtree]

Just as a general comment - I don't think there is much doubt that Microsoft is currently selling Xbox 360 at a loss and that Sony will do the same with PS3 - but with Sony, as with Microsoft, it's not possible to do this (more accurately, very risky to do this) if the cost of manufacturing is massively high.

Depending on the manufacturing costs, they can afford to do that if the consoles prove popular and they make a lot of money from selling the games.

It's a very old trick dating back (I'd guess) even before the time of the introduction of safety razors. These were (are?) sold at a loss on the accurate assumption that the profits would come from the blades.

Someone once told me - and I have no idea whether or not it's true - that the Japanese car and motorbike industries got established in overseas markets the same way; cheap vehicles but expensive spares.

But, whether or not that is true, I think it is the case that the big guns of the consumer electronics world bought into the music and movies business because they realised that there is a lot more money to be made by selling the "software", and that selling both does enable them to pioneer new hardware and formats by subsiding, in effect, the cost of hardware from the "software".

[Bob Crabtree]

Missing Xmas would be completely insane, i would have thought they would have much more to lose by missing those sales and losing even more of the market to Microsoft than launching it later when componant costs might have come down.

I reckon it's just more hype and marketing propaganda too, how can this have come as a suprise to them? They will have had the costs nailed months ago before settling on a release date. Sounds a little desparate to me.

I know of a number of instances where products have been brought to market in time for the Christmas selling season but where hindsight has shown that more damage has been caused by capturing pre-Christmas sales than by missing out on them.

Perhaps the classic recent example is Pinnacle's Studio 10 video editing and DVD authoring app. This WAS launched in time for last Christmas in the USA and turned out to be a disaster. Here's one of the stories I did about one of the revisions.

On Feb 14 - innumerable point revisions later - Pinnacle made available a 10.5.0 revision that may have actually resolved most of the significant issues (the jury's still out) but will have done nothing to allay the distrust that all the messing about beforehand created.

I think that it could be argued, that in cash-flow terms, a Sony PS3 that cost an impractically large amount to manufacture could also be a disaster - the real questions are:

* Will it turn out to cost as much as ML says?

* If not, what is the manufacturing cost-point at which it is feasible to attempt selling the PS3 in massive volumes - given that each console needs to sell enough games (on average) to more than cover Sony's manufacturing costs in a reasonable period?

* What that reasonable period would be

This said, I would add that it's a lot easier to put up news postings and forum comments about these issues than be the person who has to make the calls on decisions such as these.

They can be hugely complex and can, conceivably, be seriously damaging (or seriously good) for a company's long-term health.

Oh, but that caveat doesn't stop me adding one other contender to the would-have-benefited-by-delay list.

In my view, ATI's introduction (in very limited quantities admittedly) of its (much-delayed) new-generation graphics-card family to hit last Christmas's US market was a serious mistake.

Apart from introducing a product that had inadequate drivers and software, the company - in my view - risked seriously hacking off everyone who bought those cutting-edge products.

And that's not just because of the drivers/software issue.

The product shipped so much later than intended that the follow-up generation (which is coming to market on time, it seems) would be impractically close behind.

That, surely, is going to mean some purchasers are well-miffed on finding that their expensive purchases are no longer cutting edge so very soon after they were bought?

Better, I'd have thought, for ATI to have skipped that previous generation entirely or, if it wasn't willing to do that, to now be offering a serious rebate to those who bought products and do now want again to own the latest and greatest ATI cards.

Bottom line?

There can be many GOOD reasons not to launch in time for Christmas - even if we don't know for sure what the real situation is in the case of the PS3.

[merlin2001]

take a look at that cost breakdown. the blu-ray drive is far and above the most expensive part at $350/unit. contrast that to XBOX360 which ships with a normal DVD drive. looks like PS3 is going to cost sony a lot more per unit than x360 cost msft. msft also has a lot more cash on its balance sheet to soak up the loss (around $38 Bln for MSFT vs $11 Bln for Sony [note - i've included marketable securities in these numbers as they represent liquidity that the companies could easily tap into if needed])

even at £50/game - sony will need to sell a LOT of games to make back a loss of $400/500 per unit. (guess at around £10/game going to sony - and remember the 2nd hand market doesnt contribute to their coffers at all). getting blu-ray into people's living rooms looks to be v.important to sony as changing to normal DVD would remove these cost pressures and make it reasonable for them to sell enough games to at least break-even on the 1st few million units.... ..with blu-ray included, it looks like a big cash-drain- something sony doesn't want given their financial performance in the last few years

[Bob Crabtree]

HEXUS.gaming is reporting that Sony is in denial.

In the same piece, our eagle-eyed gaming guys have also pointed out something that we should have noticed yesterday - that Merrill Lynch's bill-of-materials analysis for the PS3 actually totals $800, not $900 as the report states.

Mind you, $800 still seems a scary amount - and Sony isn't commenting about build costs. Also note when you check out the HEXUS.gaming piece, that the Sony denial only appears to cover the Japanese launch, not the USA.

This one looks set to run and run and...

[autopilot]

As also pointed out, much of the cost is due to the Blu-Ray drive. Sony have got a lot to gain from making Blu Ray common. Just look at what the PS2 did for DVD.

[Bob Crabtree]

As also pointed out, much of the cost is due to the Blu-Ray drive. Sony have got a lot to gain from making Blu Ray common. Just look at what the PS2 did for DVD.

Sony does, of course, have a huge amount tied up in the fortunes of Blu-ray and can be expected to do everything in its powers to make that format successful.

But how much money can it afford to throw at Blu-ray to achieve that goal and how quickly can we expect the costs of Blu-ray drives, burners and set-top players/recorders to be driven down so that the kit is affordable to the masses?

Those are questions I don't feel equipped to even attempt to answer.

DVD, though, I'm comfortable to comment about - though I'm assuming that you are saying that PS2 had some significant impact on the success of DVD.

If that's so, please give chapter and verse cos, to my mind, PS2 was close to irrelevant to the growth phenomena that was DVD - but I'm totally open-minded and would be pleased to have some facts that might show I've misunderstood the factors that caused DVD to boom so very quickly.

[5lab]

hmm i dont agree with the $350 cost price of a blu-ray drive. sure, thats how much they cost at the moment, but sony can manufacture the ps3 units knowing that they will be creating 20m of them.. its very very easy for them to half the prices almost instantly..

additionally - the ps2 is still selling fairly strongly - meaning that for every console sold at a loss at launch, theres probably 10 more sold since then. the ps2 cost £300 at launch, and now costs £100 3 years later. can you think of any pc part that (at new price) would only have depreciated 70% over 3 years? aside from screens, i cant.. they must be able to make the ps2 these days (remember, a 300mhz cpu, 32/4 meg ram..) for absolute penuts - and make a fat wedge of profit on top..

[5lab]

http://news.bbc.co.uk/1/hi/business/4731128.stm