Merrill Lynch's Next-Gen console prediction

[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]

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]

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?

 

[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 Geezer]

a potentially loaded Premium X360 for $179 in late 2006

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

 

[mckmas8808]

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

With Halo 3 included.

 

[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!!).

 

[Master-Mold]

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.

 

[BTOA]

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

 

[London Geezer]

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]

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

Completely different situation.

Completely...

 

[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.

 

[London Geezer]

Completely different situation.

Completely...

Not really. Sony are in the position to price the PS2 the way they want, and to a certain extent they will be able to do that with PS3 too because they know (and everyone knows) they will sell a gazillion units anyway.

Or are we gonna start the Matrix Reloaded Start From Zero scenario where everyone forgets what happened in the last 10 years again?

 

[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.

 

[Serenity Painted Death]

Larger game library? Maybe when PS3 comes out, not in the longrun. People do, however, know what will be coming to PS3, and those franchises have satisfied just about 100 million and counting this generation. Do you really feel that X360 has gained enough to deter that? Surely you jest. Most of what MS has gained is a bunch of unproven, albeit new, franchises/games. It could end up doing well, but it would be highly unlikely for them to outperform Sony's proven stallions (assuming they mostly stay exclusive or time exclusive) much less outperform them as well as the inevitable new franchises that will arise on PS3. I think people don't realize how many "established" franchises on PS2 actually originated on the system... lots (more than MS has with Xbox by a good deal).

 

[seismologist]

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

 

[Master-Mold]

Not really. Sony are in the position to price the PS2 the way they want, and to a certain extent they will be able to do that with PS3 too because they know (and everyone knows) they will sell a gazillion units anyway.

Or are we gonna start the Matrix Reloaded Start From Zero scenario where everyone forgets what happened in the last 10 years again?

Your totally wrong.

Sony right now cannot afford to price either system PS2 or PS3 any way they want. Sony has been bleeding money lately and you simply cannot start selling your few products that actually make profit for a loss. If you take PS2 revenue away from the Sony financials they would be in dire straits. (more than already) If the PS3 is $400+ and offers no pack in HDD or other features it is then a big deal. There comes a point that too much money is too much money for a consumer and if the X360 can compete technically and cost alot less & share some good multi-plat titles (EA, GTA, Square) what reason would a consumer have to buy a PS3 that may cost 2X as much?

They also will not be giving away for cheap PS3s because they cant. Unless one of their Blu-Ray partners helps out PS3 is going to be expensive to manufacture over the duration much in the same way Xbox 1 is.

And it is totall different with the X360 and you can wipe away alot of what happened previous. Did Dreamcast have the first next-gen Madden? NO but the 360 does. That alone means a world of difference. Was Sega already hurting when Dremcast released? YES. There are many more things like this, but I dont feel like going into detail.

 

[Serenity Painted Death]

Actually, what most of these people seem to be doing is quite akin to IGN's "first X360/PS3 comparison!!" They are simply stating an obvious fact: MS will have an early lead (it is out first), attaching an outrageous title to the article, then mass speculating about one side or the other with absolutely no backing or knowledge of what they are talking about. It gets people to talk, I suppose, and nobody treats the game industry seriously anyway.

 

[Carl B]

....

Sony right now cannot afford to price either system PS2 or PS3 any way they want. Sony has been bleeding money lately and you simply cannot start selling your few products that actually make profit for a loss. If you take PS2 revenue away from the Sony financials they would be in dire straits. (more than already)

....

They also will not be giving away for cheap PS3s because they cant. Unless one of their Blu-Ray partners helps out PS3 is going to be expensive to manufacture over the duration much in the same way Xbox 1 is.

I find myself often in the position of defending Sony's financials lately.

Anyway Sony's finances aren't nearly as dire as some would paint them out to be.

That being said, I'm not sure why Sony would even want to lower it's PS2 prices this winter. Xbox1's won't be for sale for the most part due to scarcity, and there will be a lot of people looking to get in on some of the RPG's coming out, replace their older model with a slimline, or just get a PS2 with some games period.

As for blu-ray, by the end of the gen it'll be costing little more than what it costs to make a standard DVD drive, so four years from now it should no longer be a significant cost as compared to MS' DVD drive.

Anyway... I don't disagree that MS has a lot of leverage going forward this time around, but at the same time let's not paint for Sony an artificially bleak future!

 

[mckmas8808]

Your totally wrong.

Sony right now cannot afford to price either system PS2 or PS3 any way they want. Sony has been bleeding money lately and you simply cannot start selling your few products that actually make profit for a loss. If you take PS2 revenue away from the Sony financials they would be in dire straits. (more than already) If the PS3 is $400+ and offers no pack in HDD or other features it is then a big deal.

They also will not be giving away for cheap PS3s because they cant. Unless one of their Blu-Ray partners helps out PS3 is going to be expensive to manufacture over the duration much in the same way Xbox 1 is.

And it is totall different with the X360 and you can wipe away alot of what happened previous. Did Dreamcast have the first next-gen Madden? NO but the 360 does. That alone means a world of difference. Was Sega already hurting when Dremcast released? YES. There are many more things like this, but I dont feel like going into detail.

Keep it up big man you seem so sure of yourself. So I guess Sony closing in on 200 million consoles sold by the end of this holiday season just all of a sudden means nothing right? Sheesh guy at least that some pro Sony things into consideration.