Merrill Lynch's Next-Gen console prediction

[mckmas8808]

The article doesn't even pretend to be objective. It is written entirely as a vanity piece for Microsoft and its hardware partners for the Xbox 360. The 'laughable' $101 costing for CELL has now, according to Merrill, lept up to $160. Their basis for the PS3 being the primary source for recouping CELL R&D costs is based on a lack of evidence which is itself a fallacy. Sony have consistently described how CELL will be implemented throughout their CE devices, yet because they havent actually produced anything yet, Merrill decided that it was not going to happen.

[edit]Sis. They talk of the HDD-enabled pack being $250 by the PS3 launch!!!

Also, I just noticed this...

Yes!! More people with actually brains here to talk about the subject. Why would the PS3 not make the 2006 holiday season? Yet ML beleives this. Why would anybody invest their money based off this complete garbage. If a website like GAF can tear down it's laughable statements then rich people surely shouldn't invest their money based off this.

 

[Serenity Painted Death]

...I don't think Sis is saying that report mirrors Sis's personal opinions on the matter, Sis is simply trying to explain it. However, I don't think that is the issue. I think the problem most of us have is how ML could do such a horrendously poor job (and expect to be taken seriously).

 

[mckmas8808]

...I don't think Sis is saying that report mirrors Sis's personal opinions on the matter, Sis is simply trying to explain it. However, I don't think that is the issue. I think the problem most of us have is how ML could do such a horrendously poor job (and expect to be taken seriously).

Yes and that is what I believe too. I don't understand why Sis is trying to take this news in a good light though. It's obvious to smart people like us that this pdf is pure garbage.

 

[Phil]

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.

#1 depending on when Sony launches in the same regions as Xbox360, don't expect to see any significant cost differences between the premium xbox360 and PS3

#2 how much do you want to bet that there are more (and higher caliber) games [that interest current PS2 owners] in development for PS3 than there are for Xbox360?

Also got to love your emphasis on what will hurt Sony and what not without knowing their financial details nor their strategic plans for PS3 - above all without knowing when they will launch, at what cost for the consumer, at what cost to Sony etc...

 

[Master-Mold]

Dunno about that. I was replying to Mold's talk of a fully loaded $250 console a year from now, which will be an enormous loss-leader unless MS have magic fabs that can halve production costs in one year.

When I meant "fully loaded" I basically meant having an HDD. I am sure the cost of the Remote, Wireless controller, Headset, and Component Cables cant be that much, but could be left out of the equation at $250. I should have been more clear in
my bold claim of this possibility.


I wonder if MS will ever sell the X360 as one SKU in the future? Like a pack that has some premium features like storage but lacks the excess fluff. Maybe a Wired Controller, Component Cables, and 1-2 gigs of internal flash.

 

[avaya]

The analysis is actually treating the PS3 as a standard CE product; they have actually applied the same standard pricing principles they would use to assess a new CE product to PS3.

They are assuming that Sony will not subsidise the console, hence the reason for their prediction of a $500 price.

The document states that Toshiba and Sony are making the Cell and will not be able to "out execute" IBM who will be making the XeCPU. It does not acknowledge the fact that IBM East Fish Kill will be fabbing Cells from the onset!

They also assume Sony won't launch outside of Japan till 2007.....

It's very much a worst case scenario assessment IMO.

 

[Sis]

1. The development cost for the CELL will be pay for itself with the help of Toshiba and IBM using it and helping sell it to other consumers. The CELL is bigger than just going into the PS3. Something that has been said here on B3D that obviously ML doesn't understand.

Only if it sells in other markets. ML seem to think this is unlikely, as have many others. You may see a Cell chip here and there, but not on a large scale. I don't find this unreasonable and in fact think the idea that the Cell will be used in a ton of CE devices is optimistic.

2. The development cost of the Blu-ray drive can be offset by the sheer amount that they can guarntee that the PS3 will sell. It's the sense of scale that will lower the price of the Blu-ray drives. Something that has been said here on B3D that obviously ML doesn't understand.

This is the loss leader approach for sure. The question is...

3. Howard Stringer has already said that the PS3 should turn a profit in 2007. That's roughly one year after the PS3 is released. I think he and the Sony execs have better information than ML don't you? The samething happened with the PS2. You and ML just need to research how much Sony spent before releasing the PS2.

can Stringer put the company in a position of being a loss leader? I don't know what guidance Howard Stringer gave (the one ML mentions being contrary to taking losses on the PS3), so who knows?

.Sis

 

[Mmmkay]

There's some strange wording that I took to mean early leader, not "victor" but maybe I was being generous. They do not say that the $250 price is the "premium" pack, only one that contains a HDD. Otherwise, they're suggesting that MS will lop $150 off the price, which I don't think they are saying.

.Sis

Umm the core pack will disappear into obscurity shortly after launch just like with the PSP. It serves its purpose to match a $299 price point and nothing more. Microsofts shipping split of 85/15 in favour of the premium pack reflects this. Merrill Lynch's words are "It’s possible that we finish 2006 with the HDD-enabled version of Xbox 360 at $249 and the PS3 at $499." That obviously implies the non-core pack (the HDD-enabled version, not a HDD-enabled version). They haven't invited discussion of a third pack being lauched so they can only be describing the non-core pack.

[edit]Yeah sorry, I'm mixing my personal opinions about the core pack in there. It isn't really relevant to what I was replying to fortunately.

 

[Serenity Painted Death]

I don't think the Core is going anywhere, though certainly it will be far outdone by the premium package at the outset. Once the wave of early adopters passes, I think you will see the core unit catch up and pass the premium...

(which is probably a good thing for the Xbox brand)

 

[mckmas8808]

Sis just read what avaya type below and learn something. I hate to sound rude and I apolgize, but you are acting reckless right now.

The analysis is actually treating the PS3 as a standard CE product; they have actually applied the same standard pricing principles they would use to assess a new CE product to PS3.

They are assuming that Sony will not subsidise the console, hence the reason for their prediction of a $500 price.

The document states that Toshiba and Sony are making the Cell and will not be able to "out execute" IBM who will be making the XeCPU. It does not acknowledge the fact that IBM East Fish Kill will be fabbing Cells from the onset!

They also assume Sony won't launch outside of Japan till 2007.....

It's very much a worst case scenario assessment IMO.

Do you understand now? ML is using this as a worst case scenario for Sony and a best case scenario for MS. The question is why?

 

[Sis]

Yes and that is what I believe too. I don't understand why Sis is trying to take this news in a good light though. It's obvious to smart people like us that this pdf is pure garbage.

Chill out, dude. I find the report is sensible in some areas and not so much in others. I do not believe the PS3 will release at $500. I am curious why if something doesn't fit your world view it must be "garbage". I don't see anything terribly outrageous in the ML report, other than they assume that what game consoles sells the most can be boiled down to cost.

However, I do whole-heartedly agree with the notion that the only advantage MS has is first mover and cost flexibility.

I also seriously doubt it will matter, since history has show these do not matter.

.Sis

 

[Sis]

Umm the core pack will disappear into obscurity shortly after launch just like with the PSP. It serves its purpose to match a $299 price point and nothing more. Microsofts shipping split of 85/15 in favour of the premium pack reflects this. Merrill Lynch's words are "It’s possible that we finish 2006 with the HDD-enabled version of Xbox 360 at $249 and the PS3 at $499." That obviously implies the non-core pack (the HDD-enabled version, not a HDD-enabled version). They haven't invited discussion of a third pack being lauched so they can only be describing the non-core pack.

If this is true, then I think it's crazy. Cutting a $150 off the price of a system 1 year into seems highly unlikely.

.Sis

 

[Carl B]

Mckmass chill out man it's not like Sis has it out for Sony.

He's just posting as to why the analysts might be concluding what they are.

But everything else aside, Avaya good post. I haven't actually read the analysis yet - but damn if that doesn't justify my rant against analysts a little farther up the page.

 

[avaya]

If this is true, then I think it's crazy. Cutting a $150 off the price of a system 1 year into seems highly unlikely.

.Sis

They are actually assuming the PS3 launches in the US in 2007, the delay due to problems with Cell manufacture (plausible definitely), the 360 could be at $250 which would be 2 years after launch.

 

[Sis]

Mckmass chill out man it's not like Sis has it out for Sony.

He's just posting as to why the analysts might be concluding what they are.

But everything else aside, Avaya good post. I haven't actually read the analysis yet - but damn if that doesn't justify my rant against analysts a little farther up the page.

I second the "good post" to Avaya. People are up in arms about the report, but in the end it's a guesstimate based on known market conditions, some of which I'm sure are backed up by information many aren't priveledged to.

However, doing a cost analysis cannot predict outcome; it can only show weakness and strengths, which is what I took the report to do. Some of it's conclusions I agree with, such as Blu-ray being a weakness. Some I don't, such as a $250 dollar price point for Xbox 360 next year.

.Sis

 

[Mmmkay]

This is the loss leader approach for sure. The question is...

can Stringer put the company in a position of being a loss leader? I don't know what guidance Howard Stringer gave (the one ML mentions being contrary to taking losses on the PS3), so who knows?

.Sis

The predication to loss lead is usually based on the ability to have secondary revenue streams not sweeping CEO statements. By treating the PS3 as a standard CE device ignores the returns on software and peripherals.

avaya: The article states end of 2006, or 1 year after launch.

 

[avaya]

The predication to loss lead is usually based on the ability to have secondary revenue streams not sweeping CEO statements. By treating the PS3 as a standard CE device ignores the returns on software and peripherals.

avaya: The article states end of 2006, or 1 year after launch.

Yeah my bad, thanks!

 

[Sis]

They are actually assuming the PS3 launches in the US in 2007, the delay due to problems with Cell manufacture (plausible definitely), the 360 could be at $250 which would be 2 years after launch.

That would be a favorable reading, but the quote actually is:

All of this adds up to a situation that we think is much more favorable for Xbox 360, and much less favorable foPS3, than the market currently appreciates. It’s possible that we finish 2006 with the HDD-enabled version of Xbox 360 at $249 and the PS3 at $499.

.Sis

[EDIT: Damn this thread is moving fast...sorry for being redundant avaya]

 

[blakjedi]

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

Wrong.

"• Sony has in PS3 a console with plenty of impressive proprietary technology, but also a high manufacturing cost."

Thats a pretty good advantage-disadvantge mention.

 

[Sis]

The predication to loss lead is usually based on the ability to have secondary revenue streams not sweeping CEO statements. By treating the PS3 as a standard CE device ignores the returns on software and peripherals.

Heavy losses will acrue in the first year, though, regardless. It takes time for that secondary revenue stream to build up.

.Sis