PSP's margins.

[aaaaa00]

Given the recent annoucement that the PSP is going to retail for ~$185 US, what is your estimate of the total cost to manufacture the PSP?

I'd like to hear everyone's wild ass guess.

 

[Kalin]

Just wanted to point out that this is the price in Japan. I would expect it to be $200 in US (just like NDS is/will be ~$138 in japan and $150 in US).

 

[hey69]

and at least 199EURO in euroland

 

[Sonic]

I'm puling this out of thin air. I'm willing to bet that Sony is goign to take a loss on it for the first year until the manufacturing costs come down and they can put the chips on a smaller process. So....$240 to manufacture. Sales from games and accessories will be more than enough to offset my imaginary price.

 

[V3]

In term of semiconductor, PSP promises SoC when it was announced. That didn't happen with the external RAM. Still though in term of chips, I find it hard to belive if it cost more than the PS2 to manufacture. PS2 most likely contained more chips, than PSP. My guess is PSP costs less than $100 to manufacture. Then add battery, adaptor and packaging on top of it.

 

[passerby]

Whatever their margins, I doubt they are making loss per unit at launch - at least after factoring in a game and peripheral or two. Whatever loss incurred is already 'accounted for' when they built the fabs, manufacturing lines, did the R&D, etc.

This seems to be a 'classic' Sony strategy. Spend incredible amounts of $$$ to set up production and R&D. Since they own their own IP and manufacturing, once production starts they don't make 'loss per unit'. Instead they make profits to recover the investments and then make even more $$$. Being a hardware company really helps.

I think MS got fooled by this with the XBox - believing that making 'loss per unit' was 'the way it's done'. When in fact Sony is using a totally different financial strategy.

I suspect we are going to see the same thing happen with next-gen consoles, as they repeat the strategy once more. With how many billions already invested into their next-gen plans, Sony may reveal a console that may well have specs that outshine competitors, and a price tag that makes the competition really sweat. And they don't make 'loss per unit'. They 'recoup investments', then start raking in the $$$.

 

[London Geezer]

... and obviously £200 in the UK.... Cause we all know that $200=£200

 

[ChryZ]

http://www.forbes.com/home/feeds/ap/2004/10/27/ap1613048.html

Ken Kutaragi, Executive Deputy President in charge of Sony's game business, said he thinks consumers will be pleasantly surprised by the price for the device, which he said may be worth twice as much.

But he acknowledged the Japanese electronics and entertainment giant doesn't expect to turn a profit on the machine until the fiscal year that starts April 1, 2005.

 

[thop]

That's industry talk for huge loss. I predict SCE is gonna go down, and take Nintendo with them. Then MS will rise with a handheld and take the whole market by storm. Soon the console market will follow. Praise the new king! Resistance is futile You heard it here first

 

[Shogmaster]

They have to be taking a big loss. That freaking screen by itself is probably a good $100 minumum right there.

BTW, here's something I wrote up this morning that's on a related mind frame:

For first time ever, a gaming portable to be sold at loss!

--------------------------------------------------------------------------------

PSP is offcially sub $200 in Japan!

PSP 19800 Yen
http://www.scei.co.jp/corporate/release/pdf/041027a.pdf

PSP + MS Duo + remote headphone = 24800 yen
http://www.scei.co.jp/corporate/release/pdf/041027b.pdf

By this single stroke of ballsy gambit, the argument that DS and PSP is competing in different markets by Nintendo fans and even Sony's own marketing department (preparing consumers for the posibble sticker shock) has been slashed into bloody chunks. Sony is going for the kill. Sony wants the "third pillar" demolished even before it has a chance to be erected and spoil the PSP until a proper GB Advance replacement arrives.

Never in history of gaming portables, was any hardware sold at a loss. Only the console business was set to the 'sell the handles at a loss, make money on the blades' model, since the software to console attachment rate was great enough to support such a plan. No gaming portable ever came close enough to such attachment rates for the manufacturer to feel comfortable enough with selling hardware at a loss to build up the market share (perhaps some of the Gameboy iterations came close to or exceeded such attachment rates, but since they always were the market leader, they weren't ever compelled to sell the hardware at a loss at any point).

This is A HUGE gamble for Sony. Will it pay off?

Some possible reasons why Sony is compelled to sell PSP at a loss:

1. They are in it for the long haul with the PSP.

Unlike new Gameboy every 18 months plan like Nintendo's, Sony has already stated that the PSP is a 10 year hardware. You won't be seeing PSP 2 in 2 year's time (not counting the little improvements they'll make as they go), that's for sure, but you can count on a new Gameboy before 2 years is up (Nintendo has already stated that a real Gameboy Advance replacement that is not a "third pillar" is in the works, to be unveiled in a year or so).

By aiming for the long haul, they are willing to eat huge losses on the hardware for the first few years until manufacturing processes catches up on costs, while building a PSOne like iron glove stranglehold on the portable marketshare leadership.

2. PSP's technology is advanced enough to compete in the long haul.

Specs for the PSP is certainly well above the DS and anything else in the horizon. Just in polycount, PSP's 33 million per sec theoretical/8 million per sec practical just dwarfs the closest competitor in performance, which is the Tiger Telematic's Gizmondo (thanks to nVidia's GoForce 3D 4500 GPU), rated at 5 million per sec theoretical/sub 1 million per sec practical. DS's 120,000 polys per sec is not even in the same hemisphere.

I highly doubt PSP will compete anywhere near 10 years down the road, but for the next few years, it should compete handidly in 3D performance.

3. Nintendo's semi agressive pricing on the DS is forcing their hands.

$150 for DS is significantly lower than the $200 the anaylists and probably Sony were expecting. PSP's perceived value might eaily be 50% or so more over the DS to the consumers, but 100% more? Sony must have not thought so either. So their plans for $300 PSP went out the window with the Nintendo's TGS announcement (making for the unexpected silence on the PSP pricing plans back then).

Few months later, this is the reply by Sony. And the gloves are off.

Possible wrenches in Sony's plans:

1. Even with the great value PSP now presents, PSP's poor battery performance could bring the early pro and consumer reviews down enough to slow down PSP adoption outside of hardcore gamers.

Negative vibe on the battery performance could be a spoiler for PSP's market build up until Sony solves the problem, which could be couple of years.

2. Competition could catch up in 3D performance quicker than expected.

nVidia and PowerVR has already shipped portable 3D chips to OEMs, and a Pocket PC with the PowerVR chip (essentially a slower but more feature filled version of the CLX graphics chip in the Dreamcast) has shipped in the form of the Dell Axim X50V. ATI will follow suit with their own 3D handheld chip in the coming months. Although they are only a fraction of the power (1/4~1/5 approximately) of the PSP's GPU, they do run cooler and drain less battery power.

And with the focus squarely on handheld 3D now, and all the potential uber cell phones and PDAs to be sold, the race is on in mobile 3D development. Next year should be intersting since even MS is making sure that the Pocket PC OS (Windows Mobile 2005) will have all the proper support for 3D with the inclusion of Direct 3D mobile. IMG Tech (PowerVR), nVidia, and ATI, as well as others will be pouring on the money for the dominance of mobile 3D in the coming years. PSP could be superceded in 3D performance as quickly as 3~4 years, if PC 3D GPU development is anything to go by.

The question then becomes, would Sony would have gathered enough of the marketshare with the PSP by then to have enough command of the market and the dev support to twart the newcomers (one of them probably from Microsoft)?

 

[thop]

I already read that on some other board Anyway those are some reasonable points.

SONY will come out of this as a big winner, or a big loser. The problem is they are going after 3 markets, the handheld market, the (still small) portable movie player market and the iPod market (the white headphones are no coincidence), that might've been one market too many in the end. If not the PSP is the walkman of the 21st century.

 

[Shogmaster]

Other forums? What other forums?

 

[Ty]

That's industry talk for huge loss. I predict SCE is gonna go down, and take Nintendo with them. Then MS will rise with a handheld and take the whole market by storm. Soon the console market will follow. Praise the new king! Resistance is futile You heard it here first

I don't see how that makes sense. If Sony is going to take a bath, Nintendo who seems to be supremely focused on their particular market should weather the storm fine. That is, even if the DS tanked, the GBA would be sailing on strong as ever.

 

[thop]

In 6 months, both will give DS/PSP away for free. They will put a free GC/PS2 on top just to have people use their handheld. That's how bloody this battle is gonna be! In the end both will be dead, and MS will rise.



In case it actually happens you still read it here first!

 

[cthellis42]

I have no idea what the production cost for the units is, but that's really what will depend in Sony's adoption of the US price point. The PS2 sells for 19,800 right now and here for $150, so it could really be anywhere between $150-200 for the base package. Depending on what kind of losses they'd have to absorb will really determine what they charge for it in the US--after all the competition is of a different sort in the portable arena than in mainstream consoles. But they also want to enter the market with more of a PS1-like impression...

I guess we'll see.

 

[passerby]

Articles by EETimes are always good. Some explanation on how they got that price too.
http://www.eetimes.com/sys/news/showArticle.jhtml?articleID=51200766

As mentioned earlier I expect them to pull the same strategy with their next-gen console on competitors.

 

[j^aws]

It's very easy to underestimate economies of scale and having a large control over what you do with your IPs, from the full production cycle that starts from concept/R&D to manufacturing and marketing. They have very strong vertical integration with their products after recent re-structuring and heavy investments and their ROI will be paying back o ver the coming years.

This vertical integration will allow them to optimise costs accross varying products and at the heart of this is their fab investments. They'll probably switch to 65nm for PSP next year and also see an improvement in battery life. This strategy is nothing new as it's been already used in PS2 and is a taster for PS3 and Cell. It's when you balance the spec against the price, consumers get a perception of a better bargain than they anticipated and the bang per buck factor goes up, then add a sprinkling of hype and marketing (on top of non-sony hype generated by message boards and word of mouth) and you have an extremely desirable piece of kit that's in short supply...it doesn't take a F&£(Ki*G genius to see 'New Generation' Sony gaming gear fly off the proverbial shelves! This will most certainly be followed by some sort of 'bitter' backlash about Sony dominating the market unfairly etc, etc...

 

[jvd]

The question is which handheld can drop lower in price faster.


and if the psp can handle the gba 2 .

Anyway I expect the units to end up costing sony around 200ish per unit. mabye 250$ at max . For launch and will eventualy hit the 100$ mark.

 

[McFly]

I'm pretty sure tis guy got it wrong, but have a look on your own:

But moving on to the PSP itself, the price is insane! A friend in Japan suggests that Sony will be losing over $350 per unit manufactured, and looking at how advanced the tech is I wouldn't be surprised. Taking such a huge hit on hardware is unprecedented, and makes Microsoft's early Xbox losses look modest in comparison. It tells me that Sony really, really wants to be a handheld player for the long haul, and that it'll do anything possible to captures and hold a nice chunk of that market.

http://ps2.gamespy.com/articles/561/561434p2.html

If true: , but I don't think it's even close to that number.

Fredi

 

[sytaylor]

... and obviously £200 in the UK.... Cause we all know that $200=£200

aint that the steenkin truth