Sony Making Manufacturing Profit on PS3?

From Business Week:

Nikko Citigroup’s Kota Ezawa estimates the games division will lose $1.4 billion this fiscal year, following last year’s $2.1 billion loss. And while he doesn’t expect the business to be prosperous until late 2009, Ezawa applauds Sony’s efforts to shrink the PS3’s chips and tweak its design. Already such changes have cut the cost per machine to around $400 now, from above $800 just before it went on sale in November, 2006, he says. (The PS3 with an 80-gigabyte hard-disk drive retails in the U.S. for about $499.)

That is really impressive. Looks like Hirai’s claim that the PS3 could be profitable during fiscal April 1, 2008 - March 31, 2009 aren’t as pie-in-the-sky as they seemed.

There is a god, and he’s picked sides with the enemy.

Now if they could just sell them.

Does that cost-per-machine include packaging, shipping and retailer margin?

Just wondering. Those included is a good thing, making their fiscal year profit projections believable. Those added to the $400 “hard cost” of the components, well, that leaves $500 in the dust.

I believe these are generally just the cost of the components and don’t include manufacturing, packaging, shipping, mark-up etc.

I dont believe it.

SCEI lost 1.1$ billion in Q1+Q2 selling 2 million PS3 (500$ loss per unit sold). In Q3 they dropped the price 100$ and sold much more consoles. PS2 sales are declining, there is no way SCEI will only lose 1.4$ billion this year, it will be at least 2.5$ billion.

if they make $100 per unit sold, then that’s almost $500 they have made now. w00t.

I find you guys pretty funny. If you look at the graphs here you will see that the sales amount and curve for the PS3 in its first year basically is identical to the 360’s first year and yet the 360 had absolutely no current gen competition and the PS3 has 2 competitors. Some of you folks definitely need re-evaluate your perceptions.

That’s nice, but how do you figure the Wii competes with the PS3?

(Xbox 360 I could see, but to incorporate that you need to incorporate all the PS2 owners who waited for the PS3 through the X360 launch. But then to incorporate that logic is to the see stunning non-success the PS3 is having even given the PS2>all-by-a-lots installed base).

Wii is an anomaly and while hardware-wise it is indeed a phenomenal success, I don’t consider it an equivalent next-gen technology console. It’s basically a gimmicked up GameCube and provides a very cheap distraction. I don’t believe long term its software sales will take off because the additional market it tapped are not really big game buyers and the attachrate for those folks will be very low. Nintendo itself came out and said that neither the 360 or PS3 were its direct competitors anyhow I believe.

In the end, I left the Wii inthe chart because some of its sales impacted the 360 and PS3 sales, but the rest likely wouldn’t have bought a 360 or PS3 console if not for the Wii. And besides, I don’t really put the Wii in the same class/category as the 360 and PS3. And one final note, I compared it to the 360 sales simply because this seems to be a very pro 360 forum and most of the PS3 sales digs are in comparison to the strength of its direct competitor: 360.

You really can’t say “Okay, they lost $1.1 billion and sold 2 million so losses are $500/unit.”

In Q1, they lost $237 million and sold 0.71 million, so using your math they lost $333 per unit. In Q2, they lost $841 million and sold 1.31 million, for a loss of $641. Even assuming that the price dropped by $100 here, there are obviously other things going on.

What do you think those charts really mean? Because I see a system that has yet to outsell the 360 globally in any month, and that’s what it needs to make up the ground. Even if it follows the exact same sales path as the 360, it will always be millions of units behind.

The PS3 needs to start gaining ground on the global install base before we can even tallk about a turnaround.

And I don’t buy that the hardware costs are already half what they started with. Maybe with some clever math manipulation, like Sony writing off the cost of Cell processor development or something like that.

Indeed, especially when US game sales for the first twelve months are:

  1. Wii (6.0 million)
  2. Xbox 360 (3.4 million)
  3. PS3 (2.4 Million)

And interestingly, the Xbox 360 has sold 5.0 million from Nov’06-Nov’07, outselling the PS2 by over 2:1.

I dont know if they sell many PS3s or not. I’m not a console gamer. But I got so sick of the arrogance of sony in the run up to the PS3, I just hope they fall flat on their faces.

  1. VGChartz is notoriously unreliable, and relies upon the “call some EB and Best Buy managers, ask them how many they sold, and then make up some formula” method of gathering data. In fact, if you read their methodology page, it’s all pretty clear. Especially damning is the statement that: “Because the number of retailers selling videogames is quite large, it is possible to attain statistically valid results from a small sample.” That’s only true for large groups which are identically represented by a small sample (as in biological testing, and even then they move on to larger groups). But video game sales vary quite a bit by region and country. If I call 25 stores in California, it does not accurately represent sales ratios throughout the country, for instance. But I digress…

  2. If the PS3 is following the same sales curve as the 360, a year behind, then it follows that the PS3 will always be a year behind in sales. In order to catch up, much less have leading market share, the PS3 needs to be on a steeper sales curve. Anything less is considered a dramatic failure relative to Sony’s absolutely dominant positions with the PS1 and PS2.

As for the thread’s topic: Sony might have gotten PS3 manufacturing down to “nearly” $400 or so, I guess I could see that. For the gimped versions, yeah. Add a few bucks more for the larger hard drives sizes. They might be about break-even on the manufacturing cost vs. retail cost. Of course there’s shipping and marketing costs that are no joke, so it’s probably still a little bit in the red.

There are pieces of the puzzle this generation that confuse things, relative to the previous generations. A significant amount of money is being spent on things like firmware developemnt, online services (Live, PS Store, Home), and so on. And the money coming back is isn’t just system sales and software sales/royalties. It’s money spent on services like video marketplace, XBLA, PS Store, and various game-specific DLC.

How those things are accounted for, on a corporate level, aren’t always clear.

My point was two-fold. Firstly, that their sales aren’t as bottom barrel as people perceive and b) if the sales curve is roughly what it is in that graph when they had absolutely “ass” games, I am thinking it is possible for it to gain ground on its competitor if they can continue with the Uncharteds, MGSs, and new IP that is exciting and interesting. I am personally more excited about the exclusive titles on PS3 this year than the ones on the 360. Maybe I’m in a minority I don’t know, but I think there is a chance for catchup (obviously not in one year, but 2008 could be a catalyst).

That’s fair. I certainly wouldn’t be trying to make any scientific points with their data. However, their methodology is the same for both consoles. Is it possible that the errors are a wash and that the sales curve is indeed similar for both? Is there other data that is considered reliable that disputes this?

And finally, if they did indeed halve the production costs, how much further can they drop it? Does anyone have data for PS2 production cost comparisons in its life cycle? It could possible be a reasonable parallel to see what type of cost savings they got and continued to get over the years.

I imagine essentially not putting a PS2 in every PS3 probably had something to do with it.

Last I checked, it has been in Japan and Europe leading to a net gain in WW share from where they were.

The errors are not necessarily a wash. If they were truly randomly sampling retailers (calling a true random 25 stores every week out of the many thousands, across the globe) then it might work out that way. I suspect it’s more like they have a set group of “informants” that does not really change much. They way these stores are skewed would not necessarily correspond to the rest of the world as a whole.

Data from tracking agencies like NPD is certainly more reliable. They have a much, MUCH larger sample to go from.

Ultimately, as the systems go on sale in enough countries, the “units shipped” numbers the console manufacturers supply is probably the best measure (and just assume there are always some couple million in retailers’ warehouses and stores, once availability is broad enough).

The point is, even if you do believe more than you would other sites trying to provide large-scale sales and financial data that spell words with a “z” (snicker), the PS3 being on the same sales curve as the 360 is bad news for them. They need to sell a good 50% more units per month around the world, every single month, just to catch up over the next year or more.

And finally, if they did indeed halve the production costs, how much further can they drop it? Does anyone have data for PS2 production cost comparisons in its life cycle? It could possible be a reasonable parallel to see what type of cost savings they got and continued to get over the years.

Yes and no. There are some similarities. The PS3 including blu-ray was a costlier move at the time than the PS2 including DVD. The costs of those drives dropped a LOT during the first year of each of the two systems, but the costs of including a BD-ROM drive were even higher for the PS3, and have dropped even more dramatically. That’s a huge part of the cost reductions.

The PS3 can eventually get down to a $200-250 manufacture cost in the current setup (hard drive included, separate CPU and GPU). If they can consolidate the CPU and GPU somehow once they get down to 32nm or 22nm chips, they can greatly simplify the motherboard and power structure, plus the chip costs, and get down under $200, even to the low $100s maybe. But that’s going to be tricky for some complicated technical issues dealing with memory interface types and so on.

Guaranteeing a hard drive is the hard part. The base cost of a single platter hard drive of a given size (“size” as in 2.5" or 3.5" or 1.8" or whatever, not capacity) doesn’t really go down. If a 2.5" single platter drive costs $40 to make today, it costs $like $38 to make in five years. The capacity of that single platter goes way up, the cache and performance increases, but you don’t get the base cost down much. Almost everything else in the PS3 (and 360) will get cheaper to make by a factor of 3 or 4. The hard drive will get cheaper by a factor of like .02. This is part of what bit MS with the original Xbox, and a major reason why the HD is optional in the 360. As a long-term play, it’s hard to get that $179 or $149 price point, moving tens of millions at that price, without dumping the hard drive. It’s also why I think the next gen are going to utilize flash as the mass storage option - it follows the cost curve they need.

Also, given that the 360 is dead in Japan, tying the 360 worldwide means that you’re losing in everywhere that’s not Japan.

(Also, VGC’s numbers are shit when they’re pre-NPD, and I wouldn’t trust their Europe numbers, but their historical data for the US in Japan is basically corrected as NPD and MediaCreate (or whoever it is) release their numbers, so fairly reliable.)