There’s been a lot of industry speculation that Sony is losing a lot of money with each PS/3 sold.
This article claims the the total cost of the main unit alone, EXCLUDING controllers, cables, packaging and any profit margin for the retailers (i.e. Wal-Mart’s gotta make money to sell these things), is $805 to $840 (for the low and high end PS/3’s respectively). Shipping cost to the retailers is also apparently excluded. Adding in these costs, (even with a very modest assumed retailer markup) and you get to about $900-$950, which, with the current retail prices at $499 and $599, implies a $300-350 loss per unit.
I’m not an expert in component pricing and manufacturing costs, but still, I’m skeptical.
Let’s look at some specific prices in that cost estimate:
Manufacturing Costs: $40
Really? Assuming the components come pre-assembled as modules (very likely), then assembling the parts is sort of like putting a Lego toy together – plug everything together, screw a few things together, and done. I’d make a wild guess that a trained worker could assemble 2 units an hour – that’s probably very conservative. The units are apparently being manufactured by a Taiwanese company (Asustek). By my wild guess, that would seem to imply labor costs of about $10/hour, or roughly $5/unit. If Asustek in turn pushes the manufacturing to a plant in South China, it would be even less. Note that in the second table, they estimate XBox 360’s manufacturing cost at only $6.10 per unit. No explanation is given for the enormous discrepency between the systems.
Really? The plastic/alloy box around the PS/3 costs $31 in million unit bulk order pricing? I doubt it. Considering you can buy computer cases, at quantity 1, at retail price of $15 after rebate from NewEgg, I doubt Sony is paying more than $10-15 for the enclosure
Power Supply: $37.50
Hello, I’d like to order 5 million power supplies – how much will that be, per? $37.50? Wait a sec – I can buy a SINGLE 400 watt power supply at NewEgg for $20. You’re telling me my five million unit order is at almost twice that, per unit? Yes, I know the unit in the PS/3 is a ‘slim line’ power supply, but I hardly think that accounts for this price estimate. Thanks, but I’ll find a different supplier.
Other Components and Manufacturing: $148
Weren’t we already charged for manufacturing? What are these ‘other components’? The table already appears to list all the major chips, memory, hardware, optical and hard drive…
Combined price of 4 primary chips (graphics, CPU, I/O, ‘Reality Synthesizer’): $305
OK, here’s the deal with technology – I think it applies well to these chips, and to a lesser extent to the other items above.
Chipmaking has 3 main costs:
1) R & D – How much to invent it? This is basically a single large lump sum invested up front.
2) Manufacturing ramp-up – Initial yields are low and it takes time and money to figure out how to manufacture items in bulk. Again, this is basically a single large lump sum invested up front.
3) Per unit costs – Once you’ve got it developed and you have your manufacturing going, how much does it cost to stamp out each chip? This cost declines slowly over the life of manufacturing, but is much more stable (per unit) than the first two costs.
Now, a chipmaker has to make a profit per chip. Clearly, that entails charging more than the per-unit cost in item 3, but it also involves making enough money over the life of the chip run to recoup (and hopefully make a profit on), items 1 and 2.
I have no doubt that it cost Sony and their partners an enormous sum to develop these chips and their manufacturing processes. But I really doubt the true per-unit cost (i.e. item 3) is anywhere near $300 for the lot of them. Perhaps whoever created the table in question tried to amortize a significant chunk of items 1 and 2 against the first few hundred thousand chips off the line. But that just seems wrong to me – Sony, internally, is probably amortizing those costs against a projected run of 50-100 million PS/3s, lifetime (maybe more). Taking a very wild guess, I’d say the $305 figure is off by a factor of 2 or so.
To repeat, I am NOT an expert in these things, and may be wildly wrong. But it seems that analysts are applying cost pricing roughly equivalent to building a single machine with parts from NewEgg or Fry’s, rather than bulk pricing, bulk manufacturing, and amortizing R & D cost over 50-100 million PS/3s that will likely be built, lifetime.
How much money is Sony really losing, per unit? I don’t know, and perhaps Sony doesn’t really know either. Computing a per unit cost on the first batch of PS/3s is a bit of a silly exercise anyways. They’ll probably lose money in the PS/3’s first year, due to all that R&D, low software sales to a small initial base of PS/3 owners, and declining PS/2 sales. But my wild guess is that Sony will make a lot of money over the course of the PS/3 generation, and also will likely make more money than Microsoft.