[mckmas8808]

Highlights:

• As Microsoft (MSFT, B-2-7, $25.96) and Sony (SNE, B-2-7, $32.95) square off for the
launch of their next-generation game consoles, our analysis indicates that Microsoft has
a significant advantage in terms of cost. Taking Sony’s weakened financial condition
and Microsoft’s deep pockets into consideration, we conclude that Microsoft’s Xbox
360 should emerge as the early winner in the next round of the game console wars.

• Sony has in PS3 a console with plenty of impressive proprietary technology, but also a
high manufacturing cost. The launch is coming just as Sony tries to come to grips with
its deteriorating financial situation.

• Our analysis of the bills of material for the Xbox 360 and the PS3 indicates that the PS3
will not only be significantly more costly than Xbox 360 at launch, but will continue to
operate at a cost disadvantage for several years. Based on the cost analysis as well as
our analysis of the two companies’ strategies, we think that Xbox 360 could be selling at
half the price of PS3 in the latter half of 2006.

• Microsoft comes to the launch with a nearly unlimited ability to loss-lead with hardware
sales if it chooses to. Competitive pricing could hurt margins for the near term, but we
think that Microsoft has the potential to exit 2006 with an installed base of 10 million
units, with all that implies for more profitable software sales for 2007. Also, as volumes
ramp up, Microsoft should see an improved ability to lower hardware costs.

• That would not only be big news for Microsoft and Sony, but also for the many software
partners and semiconductor suppliers supporting the PS3 and Xbox 360. Should Xbox
360 manage to open up an early lead, potential beneficiaries include ATI Technologies
(ATYT, C-1-9, $14.42) and of course Microsoft itself. Marvell (MRVL, C-2-9, $45.62)
would benefit from a rapid Xbox 360 ramp although the company also has PS3
exposure, and memory maker Infineon (IFX, C-3-9, $9.36) is supplying Xbox 360 as
well. The biggest perceived losers would be NVIDIA (NVDA, C-2-9, $33.14), which is
the graphics partner for PS3, and Sony.

• On the software side, we highlight Electronic Arts (ERTS, C-2-9, $55.62) and
Activision (ATVI; C-1-9; $16.12) as early high share holders for the Xbox 360 platform.

OMG! So they lol... I can't stop lol... So they think because MS's money is long that this will push them to win the next-gen battle? Oh Merrill Lynch you have some learning to do. I know everyday posters that can predict better than this. This is so funny. How do you guys interpert this?


Link http://webpages.charter.net/spartan85/ML_Consoles.pdf

[Master-Mold]

Originally Posted by mckmas8808

OMG! So they lol... I can't stop lol... So they think because MS's money is long that this will push them to win the next-gen battle? Oh Merrill Lynch you have some learning to do. I know everyday posters that can predict better than this. This is so funny. How do you guys interpert this?


Link http://webpages.charter.net/spartan85/ML_Consoles.pdf

They never said MS will win. They simply stated the obvious that MS has the luxury to price their console as affordably as needed and Sony cant.

Of course that is a huge advantage to MS. I dont think MS will sell more 360s than PS3s but they have much better vendor terms this time around and have resources to play with. Anyone who thinks that having a potentially loaded Premium X360 for $179 in late 2006 vs. a $400 PS3 isnt bad a place for Sony to be in they need medical help.

[mckmas8808]

Originally Posted by Master-Mold

Anyone who thinks that having a potentially loaded Premium X360 for $179 in late 2006 vs. a $400 PS3 isnt bad a place for Sony to be in they need medical help.

Anybody that thinks that MS would sell a loaded Premium Xbox 360 for $179 vs. a $400 PS3 needs medical help. You sure don't think this could happen do you?

[Master-Mold]

Originally Posted by mckmas8808

Anybody that thinks that MS would sell a loaded Premium Xbox 360 for $179 vs. a $400 PS3 needs medical help. You sure don't think this could happen do you?

It all depends.

It depends on how the X360 has sold up to that point. It depends on Sonys financial standing and whether MS feels they can go for their throat. It depends on production costs which are supposed to get much lower every year for MS with the X360. It depends on Microsoft Vistas acceptance.

Will it happen? Not likely, but the point is MS can and Sony really cant. Hell even a loaded 360 for $229-249 spells bad news for Sony and really puts pressure on them.

[london-boy]

Originally Posted by Master-Mold

It all depends.

It depends on how the X360 has sold up to that point. It depends on Sonys financial standing and whether MS feels they can go for their throat. It depends on production costs which are supposed to get much lower every year for MS with the X360. It depends on Microsoft Vistas acceptance.

Will it happen? Not likely, but the point is MS can and Sony really cant. Hell even a loaded 360 for $229-249 spells bad news for Sony and really puts pressure on them.

Yeah cause a even-today-more-expensive-than-Xbox PS2 really hurt its sales...

[Master-Mold]

Originally Posted by london-boy

Yeah cause a even-today-more-expensive-than-Xbox PS2 really hurt its sales...

Completely different situation.

Completely...

[scooby_dooby]

Well it;s one thing when the console(PS2) has many more games than the other (XBOX), that will have more ipact than a $50 price difference.

It's entirely different when X360 will have the larger game library AND a lower pricetag, yes that will hurt Sony, no doubt about it.

[seismologist]

Sounds like they've been doing alot of talking with Microsoft. That analysis doesn't even mention any of the PS3 advantages.

[BTOA]

Isn't Merrill Lynch the same group that said PS2 would cost $400+ or something prior to the PS2 launching?

[Serenity Painted Death]

If I were MS, I'd worry about outselling a six year old PS2 before I worried about dethroning Sony, however, I think Meryll is basing their cost projections off their old report of "every component of the PS3 costs exactly 101 dollars" projection which is so laughable for obvious reasons you are forced to discredit anything along a similar vein.

Sony doesn't have the stability and pockets right now to be a ruthless with price drops as MS, but that stability is one reason MS isn't going to "throw it all" at the PS3. They're not suicidal. That they are pricing the premium X360 a bit higher than normal, and have said in interviews they are more keen this time around to not just lose bundles on hardware, just reinforces this. Furthermore, that the PS3 is a means of pushing blu-ray, I think you will see Sony go lower than they might otherwise normally, and who knows how other companies with vested interest in blu-ray might help them accomodate this.

[jvd]

Originally Posted by mckmas8808

Anybody that thinks that MS would sell a loaded Premium Xbox 360 for $179 vs. a $400 PS3 needs medical help. You sure don't think this could happen do you?

I've already said i expect 200/300 for next holiday or shortly after . A 200$ core unit will sell well as that is the price of what the casuals wnat and many of them wont be downloading mods or streaming video and if they do so at that point in time there can likely be used hardrives for cheap or even a price drop in the 20 gig hardrive .


As for sony's system costing more its what i've been telling u for awhile .

[Carl B]

Well, I don't agree with Merrill's assesment, but then again I didn't the last time either, when they released their '$101 per component' estimate.

I don't know, whatever. I agree that this forum as a whole is much better educated on these matters than are a lot of these analysts, but we don't always come to consensus either. Whatever the case, this report is a bit of 'good vibe' press for MS leading up to the launch.

Merrill - out of all the analyst houses - seems particularly in love with 360, looking at the trend in their reports.

[london-boy]

Originally Posted by Master-Mold

a potentially loaded Premium X360 for $179 in late 2006

Puh-leeease everyone knows by then it will be $49.99!!!

[mckmas8808]

Originally Posted by london-boy

Puh-leeease everyone knows by then it will be $49.99!!!

With Halo 3 included.

[AzBat]

Originally Posted by Master-Mold

They never said MS will win. They simply stated the obvious that MS has the luxury to price their console as affordably as needed and Sony cant.

Of course that is a huge advantage to MS. I dont think MS will sell more 360s than PS3s but they have much better vendor terms this time around and have resources to play with. Anyone who thinks that having a potentially loaded Premium X360 for $179 in late 2006 vs. a $400 PS3 isnt bad a place for Sony to be in they need medical help.

You might want to check that again. Anybody thinking the Xbox 360 will be less than $200 in ONE YEAR is definitely on some major hallucinogenic. No matter what Sony does I seriously doubt we will see Microsoft reduce the cost of Xbox 360 more than $100 in one year's time. I could see them dropping to $250 for the core and $350 for the premium with no bundled game. I could also see them keeping the prices the same and include a bundled game. You can bet there will be a perceived increase in value from the 2005 launch prices to 2006 holiday prices, but it won't be anywhere near the values you're hoping for.

As for Merrill Lynch's prediction I think they are sound and feasible for the most part. To me it suggests they might be hinting at PS3 costing $500. Half of $500 would be $250 and that could be a realistic number for Xbox 360 in one year's time. However, I'm not so sure $500 is a realistic price for the PS3's US launch. I suspect Sony might launch in Japan earlier at that kind of premium price, but it will probably max at $400 for the US.

Merrill Lynch(and other market research companies like them) are usually pretty good at estimating the BOM for products like this. They have access to numbers directly from the suppliers. If Microsoft's BOM is cheaper than Sony's then I don't think you can discount their estimates. Personally I wouldn't be surprised if Microsoft's BOM was cheaper. I'm sure we'll start seeing more estimates similar to Merrill Lynch's as we approach Sony's launch announcement.

Tommy McClain

[Serenity Painted Death]

I'm curious, because I really don't know, but was Meryll one of the firms estimating a 500 dollar price tag for the PSP? Ditto PS2.

These firms have a long and storied history of horribly overestimating the price of Sony game machines.

[avaya]

Originally Posted by Serenity Painted Death

I'm curious, because I really don't know, but was Meryll one of the firms estimating a 500 dollar price tag for the PSP? Ditto PS2.

These firms have a long and storied history of horribly overestimating the price of Sony game machines.

Analysts are, by their very nature, conservative with figures.

Merrill are reporting that PS3 could well cost just below $500 to manufacture.

Whether they believe Sony will continue the PS2 business model with PS3 i.e. selling the system at a loss is the question here. Merrill are of the opinion that Sony can't or won't do that anymore.

The analysts are always in some sense accurate with their figures since they are always taking estimates based on the most conservative scenario possible.

[Serenity Painted Death]

That "analysis" is so dumb it is literally painful.

X360 will emerge as the "early leader"? REALLY!!!

Cause, you know, considering the fact it will be out in all three regions a good year before the PS3... I'd expect it to have an EARLY LEAD. It could cost 1 million dollars, sell one unit, and it would have an early lead. Cost has nothing to do with it.

They have no idea what it costs to construct a PS3 unit, nor any idea what it will sell for (no more than a premimum X360 initially, maybe a tad less is the likely scenario... and Sony wouldn't be losing nearly as much as MS with possibly a 150 premium unit a year after launch... but this is all pure speculation). I'd really love to see this "list of materials" that makes PS3 vastly more expensive. I also see no "analysis" of the fact that PS3 is, more than anything, a trojan horse to deploy blu-ray players into consumer's homes.

I have no doubt MS will aggressively attack Sony with price drops, but I'm not as confident as this report they they will gleefully take many more billions of losses just to possibly harm Sony considering how much they lost on the first Xbox (hell, six months after release, 400 > 180 is a reasonable drop! We won't even notice!!).

[Sis]

Originally Posted by mckmas8808

OMG! So they lol... I can't stop lol... So they think because MS's money is long that this will push them to win the next-gen battle? Oh Merrill Lynch you have some learning to do. I know everyday posters that can predict better than this. This is so funny. How do you guys interpert this?


Link http://webpages.charter.net/spartan85/ML_Consoles.pdf

A) They never predict that MS will "win"; they say that MS has significant advantages and then they detail those advantages; namely, first mover and costs
B) I'm sorry, but some of the cost predictions I've seen on this board are laughable at best: "I can buy a 40 gig hard drive at NewEgg for 30 bucks, so surely MS is paying less" or "Sony is manufacturing X so it's essentially free."

Key points from the article (IMO):

• We believe that Sony must be focused on recovering a portion of the development costs for Cell with PS3 sales
• The other major cost disadvantage lies with the Blu-ray drive that Sony plans to include
• CEO Howard Stringer has made some public commitments regarding the target level of profitability for the March 2007 fiscal year, and we're not sure those target are consistent with large losses on PS3 hardware.[xbdestroyer, this is different than "is Sony capabable of bleeding money" and speaks more to whether they should bleed money]

Also, for those up in arms about the costs, they have a breakdown figure in the document.

.Sis

[Serenity Painted Death]

Originally Posted by Sis

A) They never predict that MS will "win"; they say that MS has significant advantages and then they detail those advantages; namely, first mover and costs
B) I'm sorry, but some of the cost predictions I've seen on this board are laughable at best: "I can buy a 40 gig hard drive at NewEgg for 30 bucks, so surely MS is paying less" or "Sony is manufacturing X so it's essentially free."

Key points from the article (IMO):

• We believe that Sony must be focused on recovering a portion of the development costs for Cell with PS3 sales
• The other major cost disadvantage lies with the Blu-ray drive that Sony plans to include
• CEO Howard Stringer has made some public commitments regarding the target level of profitability for the March 2007 fiscal year, and we're not sure those target are consistent with large losses on PS3 hardware.[xbdestroyer, this is different than "is Sony capabable of bleeding money" and speaks more to whether they should bleed money]

Also, for those up in arms about the costs, they have a breakdown figure in the document.

.Sis

Isn't this ignoring the fact that Sony is not the sole entity involved with the production or creation of both the Cell processor and the Blu-ray optical media? Surelyl, they have a large stake, perhaps the largest, but they aren't exactly going it alone nor do they have to make this all up with PS3.

[Master-Mold]

Originally Posted by Serenity Painted Death

Isn't this ignoring the fact that Sony is not the sole entity involved with the production or creation of both the Cell processor and the Blu-ray optical media? Surelyl, they have a large stake, perhaps the largest, but they aren't exactly going it alone nor do they have to make this all up with PS3.

But Sony has reportedly already spent $1.75 Billion in Cell R&D IIRC.

[Carl B]

Originally Posted by Master-Mold

But Sony has reportedly already spent $1.75 Billion in Cell R&D IIRC.

Well, Cell R&D was around $600 million combined I believe. Above and beyond that, Sony has spent aound $3+ billion on expanding fab capacity.

[Shifty Geezer]

Originally Posted by Master-Mold

But Sony has reportedly already spent $1.75 Billion in Cell R&D IIRC.

That money includes fabrication investments.

[Sis]

Originally Posted by Serenity Painted Death

Isn't this ignoring the fact that Sony is not the sole entity involved with the production or creation of both the Cell processor and the Blu-ray optical media? Surelyl, they have a large stake, perhaps the largest, but they aren't exactly going it alone nor do they have to make this all up with PS3.

As the document points out, the PS3 is largely the only area in which they can recoup the development costs.

.Sis

[Serenity Painted Death]

I imagine they have royalty deals, etc, with other companies that will be using the technology, licensing fees for digital media, the list could go on.

Would it not be more accurate to say it is the LARGEST potential recouper? Not necessarily the only one.

One must also then wonder if they would stand to gain more by taking a relatively risky initial loss for future gains (early slaughter of HD-DVD). If hardware sales go as expected, they'll be making money on software pretty soon.