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Will Sony lose more than $1 billion on PS3 hardware?

Written by James Delahunty (Google+) @ 29 Jun 2005 23:57 User comments (15)

Will Sony lose more than $1 billion on PS3 hardware? According to Merrill Lynch Japan, Sony might lose over $1 billion on hardware during the Playstation 3's first year. In the latest edition of Toyo Keizai, a Japanese magazine, Merrill Lynch Japan Securities calculated the product cost of a PS3 to be around 54,000 yen ($494), as of its initial release in 2006. The main components of the machine, including the Cell chip, RSX, and BD-ROM drive will come to a price of 11,000 yen ($101) each.
However, it is highly unlikely that Sony would release the console at its production cost due to the competition it is facing with Microsoft's XBOX 360 console which will sell for $299. Merrill Lynch Japan predicts that Sony will initially sell the PS3 console for $399 in America and 44,800 yen ($410) in Japan. If those figures turn out to be accurate, that means Sony will make a loss of 130 billion yen ($1.18 billion) in the first year.

However it is normal for a company to make take hardware losses when they launch a new console as the first year is dedicated to market share more than making a profit. In 2000, Sony launched the Playstation 2 console for $299 in America and 39,800 yen ($364) in Japan and suffered a 51.1 billion yen ($458 million) loss. However in the second year the company made a profit of 82.9 billion yen ($759 million) and 112.6 billion yen ($1.03 billion) in the third year.

Merrill Lynch Japan warns however that if Microsoft decides to cut the price of the XBOX 360 console when the PS3 is launched, it could hurt Sony's plans causing a loss of 80 billion yen ($730 million) in its second year and 50 billion yen ($457 million) in its third year. "Whether consumers think a product is expensive or cheap all depends on the balance between its appeal and price," Sony Computer Entertainment president Ken Kutaragi said. "Our ideal [for the PS3] is for consumers to think to themselves, 'OK, I'll work more hours and buy it.' We want people to feel that they want it, no matter what."

He did not reveal the price of the console however, but his indications are that the company wont mark the price down that much. "When Nintendo was selling its 16-bit machine at around 12,500 yen ($114), we sold the first PlayStation at 39,800 yen ($364)," continued Kutaragi. "The press was saying that it was expensive, but it was a huge hit. It's the same thing with the PlayStation Portable from last year. The Game Boy Advance is a same handheld gaming machine, and it costs less than 10 thousand yen ($91). On the other hand, our PSP had cost 25,000 yen ($229). But people lined up overnight to buy it, and it sold out on the day of its launch. It all depends on whether people want it. Of course, I'm confident that the PS3 is a product that people will definitely want."

Such confident words are exactly what Sony needs to counter the utmost confidence coming from the Microsoft side.

Source:
Gamespot

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15 user comments

130.6.2005 3:39

Maybe Sony will finally realize that their products are always overpriced.

230.6.2005 7:11

Quote:
The Game Boy Advance is a same handheld gaming machine, and it costs less than 10 thousand yen ($91). On the other hand, our PSP had cost 25,000 yen ($229). But people lined up overnight to buy it, and it sold out on the day of its launch
Yeah, but ds launched same time and sold even more than psp.

330.6.2005 7:27

as been as the PSP sold out, you cant really compare sales figures. There were plenty of DS to go around, and they didnt sell out. But there werent enough PSP....who knows, if PSP had shit loads of stock they may have outsold DS (though i doubt it). As the article says, every company experiences a loss....look at mickeysoft with the xBox, loss is an understatement.

430.6.2005 9:43

Yeah but microsoft has the money to spend. They could be selling x360 199$ if want to. But they want more money of course. They release x360 6 months before ps3 and it probably costs over 100$ less than ps3. And I guess it will cost even less when ps3 launches or earlier.

Quote:
Merrill Lynch Japan warns however that if Microsoft decides to cut the price of the XBOX 360 console when the PS3 is launched, it could hurt Sony's plans causing a loss of 80 billion yen ($730 million) in its second year and 50 billion yen ($457 million) in its third year
When it comes to microsoft I know that they will lower x360 price, but not because components are cheaper but to hurt sony, even if they make huge losses. But still ps3 will be a succes and it's only good for average consumers.

51.7.2005 7:02

What are they crying about? They will make it up in video game sales. Software makes far more money than hardware. Us computer techs even know that. But service makes the most. -Del

61.7.2005 10:01

I think ps3 is going to be over $300. That's why i am going to wait a year after it comes out. So the price can drop.

71.7.2005 11:15

Quote:
Merrill Lynch Japan predicts that Sony will initially sell the PS3 console for $399 in America and 44,800 yen ($410) in Japan.
You think it will be over 300$? Think again. They think it will be over 399$ so you'll have to wait for a while. In a year it costs about that 300$.

81.7.2005 11:20

Good thing about waiting for awhile is that they fix all the major bugs. and good games will comes out and it will be cheaper and maby mod chip will be out!!!

91.7.2005 11:31

hey sony's a big company they got the money don't worry they won't go bankrupt.


stop hoping, start loving.

102.7.2005 18:57

well Sony is kinda in the RED right now

113.7.2005 10:10

i hope they do lose money.. crooked greedy bastards.. i'm buying an XBox this time!

128.7.2005 14:04

Sony is crooked I mean really how many PS2 systems have any of you gone thru, I'm willing to bet 2 or 3! Now the Xbox is deffinatly a sold built system. Its a shame I stayed on the PS2 bandwagon instead of xbox. The PS3 will get hurt bad, why ? 1. Blue Ray is still new tech and we can't be sure how long the drive will last B4 it craps the bed, if the PS2 still can't get DVD drives to work for ever (my DC still works :-p) then I can only imagine how short the life of a BR drive will be. 2. if xbox 360 will be 100 cheaper then I'm thinking revolution will be 100 cheaper then that, OUCH!!. 3. if the ps3 is really going to hit close to 400-500 then I know me personally Id rather spend the money on souping up my car and other people will spend that 1/2 a G note on other more usefull crap. 4. ony adult will get the system for them selves, your not going to see many kids having their parents buy a 400+ system. As it is now I hear tons of kids begging for the PSP and parents are like hell no!!!!! I really want Sony to bite the bullet this time. I liked the ps1, hate the ps2 (I freakin got burnt on the Hard Drive, oh yeah SOCOM 2 will support the HD, my ass grrrrr!!!!) OH and my psp has dirt in the screen!!!!!!!!!!!! Bullshit for 250 I should be getting perfection!

1312.7.2005 12:47

misconception.. fool.. feel sorry for you :(

1412.7.2005 17:02

would YOU lose a billion dollars on hardware? OK, then why would Sony, a fortune 500 company? Or you're just pointing it out, in that case everybody knows they'll make it up in related products.

159.12.2005 19:02

I think the Bill Gates will lower the cost of the 360 just to screw over Sony and their Blu-Ray. Plus I can't speak for the rest of you but I been around the block a few times. And have seen this new Technology come out and seen alot of things fall on it face. I can still remember when folks were buying the record size laser discs. There was also a report about how there is a huge cost difference in the making of blank Blu-Ray discs and HD-DVD discs. Now if you take that as being the truth for the moment then how much will it cost to put games on a Blu-Ray disc. The only thing that I can find wrong with Sony's strategy is that if their Blu-Ray reader craps out like it did on earlier Playstations. And that would cost them a small fortune and a possible loss in customer base. And here is one last kernel to think about, all cars sold in Japan come with cassette standard. Why because to buy music on CD's there is so expensive. And it is cheaper to put it on a cassette tape, you go figure. So the idea that Blu-Ray will be the winner or even HD-DVD seems to me not as clear as the companies are saying it to be.

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