Sony Earnings Report Q2 2009 (Gaming/PC/Network)

[Gubbi]

I guess you can blame the Ps3 for a lot of things, this however was something that would have happened with or without the PS3.

In fairness, I think Sonys hand were forced by Microsoft. The early release meant that they couldn't push the BOM down enough to make the PS3 as big a smash hit as PS2 were, and that this compounded the problem of their fab being underutilized.

Still, seems like very poor planning/foresight to spend money upgrading it to state of the art just prior to binning it.

Cheers

 

[Crossbar]

In fairness, I think Sonys hand were forced by Microsoft. The early release meant that they couldn't push the BOM down enough to make the PS3 as big a smash hit as PS2 were, and that this compounded the problem of their fab being underutilized.

Still, seems like very poor planning/foresight to spend money upgrading it to state of the art just prior to binning it.

Cheers

Beside the BOM, I think the fact that Sony failed to ramp up the production of BR-LEDs was a very costly failure as it delayed the ramp-up of PS3s and pushed the European release of the PS3 into the spring of 2007, which effectively also delayed the growth of the PS3 user base.

I also think that Kutaragis Semiconductor fabs were a pipe dream that was bound to fail, by the time he made up those plans, the writing was on the walls that the costs of the semiconductor industry was about to explode and there was no room for small players. You either go for being a major CPU, GPU or memory manufacturer to get the volumes or you should stay out of that business and just buy the services you need. Maybe Kutaragi had a vision that Sony would become a major semiconductor manufacturer, we will never know.

 

[upnorthsox]

Beside the BOM, I think the fact that Sony failed to ramp up the production of BR-LEDs was a very costly failure as it delayed the ramp-up of PS3s and pushed the European release of the PS3 into the spring of 2007, which effectively also delayed the growth of the PS3 user base.

I also think that Kutaragis Semiconductor fabs were a pipe dream that was bound to fail, by the time he made up those plans, the writing was on the walls that the costs of the semiconductor industry was about to explode and there was no room for small players. You either go for being a major CPU, GPU or memory manufacturer to get the volumes or you should stay out of that business and just buy the services you need. Maybe Kutaragi had a vision that Sony would become a major semiconductor manufacturer, we will never know.

Not sure how you can call them Kutaragis semiconductor fabs, he was president of SCE not Sony. That blame should ultimately go to Nobuyuki Idei who made more than his fair share of costly mistakes.

The reality is that Sony has gone from being 20th in semiconductor sales in 2000 to 7th in 2008. They still might not rival the big 4 of Intel, Samsung, Toshiba, and TI but then they've been sitting on top for a long time.

 

[Gubbi]

Beside the BOM, I think the fact that Sony failed to ramp up the production of BR-LEDs was a very costly failure as it delayed the ramp-up of PS3s and pushed the European release of the PS3 into the spring of 2007, which effectively also delayed the growth of the PS3 user base.

Exactly!

I think that Sony initially aimed for a holiday 2007 world wide release, - allowing plenty of time to ramp blue laser production and port the RSX design to Sony's fab design rules. Microsoft threw those plans out the window.

A later release might have resulted in fab utilization levels that would have made the fab affordable. Remember console harwarde is special in that it doesn't change for multiple years, which means you have more time to amortize fab upgrade costs.

Cheers

 

[Carl B]

Maybe Kutaragi had a vision that Sony would become a major semiconductor manufacturer, we will never know.

Not sure how you can call them Kutaragis semiconductor fabs, he was president of SCE not Sony. That blame should ultimately go to Nobuyuki Idei who made more than his fair share of costly mistakes.

Kutaragi definitely had a vision of Sony becoming a major player in the semi industry - he said so himself afterall! Upnorthsox Kutaragi was president of more than simply SCE for a time at Sony; he led the semi division and portions of consumer electronics as well for a couple of years just prior to the Stringer announcement.

The problem with the "writing being on the wall" for the semiconductor industry is that the writing wasn't on the wall when the effort behind Cell and the fab build-outs began. The 90nm gen was the gen that the industry was shocked to reality during, and that is the gen during which they tried to break in with Cell and their new SOI fabs. I mean if you recall when the Cell project began, they were planning on launching at 65nm... it's telling that it was 90nm and 65nm was much delayed. Of course, 90nm to 65nm was a hard transition for everyone in the industry.

It's just a bad break in terms of the scope of the project and its commitment in terms of time and money; Sony wasn't able to change course by the time the red lights started going off in terms of capital investment requirements, global semi demand, and node transition costs.

Anyway... I'm a Kutaragi fan; hard to say in retrospect Cell was the right move, but it was a bold move and a landmark architecture no matter what happens with it in the future. I always respected that technology-first, shoot the moon aspect of Kutaragi's. Plus I think he would have pursued format unification with Toshiba if he had his way, which I think would have hedged against the lion's share of cost overages.

 

[Carl B]

@Gubbi: RSX was slated for OTSS all along though rather than the Nagasaki fab, so more an issue with the joint Toshiba/Sony CMOS process than anything Sony specific in that case.

 

[catisfit]

They weren't selling Slims then, though.

True, but the article didn't clarify that it was talking of slims only. Besides, there's the cost of R&D and retooling for slim production, and some parts may even have (temporarily) increased in cost due to the format change.

Even still though, we don't know that Cell (or an evolution thereof) will carry over to the PS4.

True as well - there's no rule saying the world has to make sense

And I doubt that they can stick to the current price point indefinitely. At some point the $299 price point may be turn a profit on each console in 2010, but its doubtful, Sony will be able to stay there long enough to see huge returns.

I expect they'll switch to the usual practice of letting the price fall alongside the cost, keeping it relatively neutral over time until they hit, say, $199. From that point forwards they'll make a profit on every console sold. In the meantime the profits will come from software/accessories/services.

 

[upnorthsox]

Kutaragi definitely had a vision of Sony becoming a major player in the semi industry - he said so himself afterall!

Ken said many things, some thought he was even crazy!
He had also talked about getting out of the chip manufacturing biz completely, long before the PS3.

Upnorthsox Kutaragi was president of more than simply SCE for a time at Sony; he led the semi division and portions of consumer electronics as well for a couple of years just prior to the Stringer announcement.

I'll defer to you here.

The problem with the "writing being on the wall" for the semiconductor industry is that the writing wasn't on the wall when the effort behind Cell and the fab build-outs began. The 90nm gen was the gen that the industry was shocked to reality during, and that is the gen during which they tried to break in with Cell and their new SOI fabs. I mean if you recall when the Cell project began, they were planning on launching at 65nm... it's telling that it was 90nm and 65nm was much delayed. Of course, 90nm to 65nm was a hard transition for everyone in the industry.

I'd add that it was no small part of the R&D $$$ spent on the Cell was actually for SOI fabrication tech. That they appear to have chosen to go in a different direction now is Springer's call, right or wrong. It's just unfortunate that in these discussions the whole cost is lumped under the PS3.

It's just a bad break in terms of the scope of the project and its commitment in terms of time and money; Sony wasn't able to change course by the time the red lights started going off in terms of capital investment requirements, global semi demand, and node transition costs.

Anyway... I'm a Kutaragi fan; hard to say in retrospect Cell was the right move, but it was a bold move and a landmark architecture no matter what happens with it in the future. I always respected that technology-first, shoot the moon aspect of Kutaragi's. Plus I think he would have pursued format unification with Toshiba if he had his way, which I think would have hedged against the lion's share of cost overages.

Do you believe it was a misstep though? I'd say that allotting that much money to the development of a single purpose chip is a mistake but IMO the bigger mistake was letting it become a single purpose chip to begin with.

I'm also disappointed in what appears to be the death of the Cell moving forward. Imho it will have more to do with politics than it does performance which is sad as it's the Cell that has continued to give long after the "off-the-shelf" GPU gave up.

Carl, I'd be interested in hearing what your missteps list is and how many of them have not already been addressed.

 

[Crossbar]

The problem with the "writing being on the wall" for the semiconductor industry is that the writing wasn't on the wall when the effort behind Cell and the fab build-outs began.

Maybe, but I think the trend towards consilidation within the semi-con business had started by then. Anyway Kutaragi seem to have been a firm believer combining CE and semi-con business to the bitter end.
http://www.eetasia.com/ART_8800364306_480600_NT_1f435fbc.HTM

But Sony wasn't willing to live with lower margins, especially for Playstation. In unveiling the Playstation Portable in Tokyo last fall, Kutaragi said the game division relied on Sony's semiconductor operations for 50 percent of the box's component value. Aggressive pricing was only possible, he said, because key ICs were designed and fabricated internally, using a 90nm process."You can't pull off this kind of pricing by depending on off-the-shelf components," Kutaragi said. The first-generation Playstation, by contrast, used ASICs from LSI Logic, a graphics chip from Toshiba, and memory from NEC, Mitsubishi, Toshiba and Hitachi. The only key internally developed component was a Sony disk drive, Kutaragi said.

Yet..

Semiconductor companies have vastly different capital needs, planning horizons, strategies, internal disciplines, market and channel management, and target markets than CE companies. If the two are under one roof, there has to be an almost church-and-state separation, with consolidation happening only at a financial level. This is why huge companies like Hitachi, Mitsubishi, Motorola and others have effectively divested their IC operations.

 

[Gubbi]

There is a difference between the normal IC market and the console component market. Regular semi producers compete on speed, power usage and density as well as price. This means they have to follow the 18-24 month upgrade cycle to stay competitive. This is a capital cost intensive game.

Console components on the other hand have a much longer life span. The producer need only look at price once the initial design has been finalized. This gives a much longer time horizon to amortize the costs of upgrading a fab. Shrinks are done when they are cost-effective, holisticly, - a shrink may give lower power usage which allows a cheaper AC adapter/cooling solution/RRODs.

Using a foundry of course means that you can get the old fab tech for basement bargain prices since the foundry already amortize the costs, so I'm not sure producing the ICs internally make economic sense at all.

Cheers

 

[Crossbar]

It all comes down to volumes, if the cost of each process upgrade tend to grow then your volumes need to grow as well.

Selling/sharing production facilities to/with Toshiba was in the end an inevitable development of the situation in my opinion.

 

[Carl B]

He had also talked about getting out of the chip manufacturing biz completely, long before the PS3.

This I'm not aware of - anything I had read contemporaneous to Cell's development out of Kutaragi was always in the context of STI rising to challenge the existing architectural paradigm, including on a manufacturing basis. They were once hopeful of being the first to 65nm and 45nm on complex IC's, afterall.

I'd add that it was no small part of the R&D $$$ spent on the Cell was actually for SOI fabrication tech. That they appear to have chosen to go in a different direction now is Springer's call, right or wrong. It's just unfortunate that in these discussions the whole cost is lumped under the PS3.

Well of course - the fabs and the investments behind them (and snags related to the technology), were the bulk of the costs to begin with. Cell R&D itself was +/- $500 million, the fab costs were billions, and of course they were sold at a discount to Toshiba.

Do you believe it was a misstep though? I'd say that allotting that much money to the development of a single purpose chip is a mistake but IMO the bigger mistake was letting it become a single purpose chip to begin with.

It found itself as 'single purpose,' but was never meant to be at the outset. The problem again goes back to the fab technology. The original Cell envisioned would have been much cooler running out of the gate, cheaper, and on a smaller process. It would have found itself in CE devices more readily and the economies of scale envisioned would have been there to support the build-out. Also, it was about a year late to reach volume production; if it had arrived a year earlier, I think it truly would have had a huge impact on HPC computing. Even as it stands it's made a decent mark for itself there, but the lack of a broader infrastructure leaves it ironically quite niche at the same time that it remains very accessible on the workstation level (via PS3).

I'm also disappointed in what appears to be the death of the Cell moving forward. Imho it will have more to do with politics than it does performance which is sad as it's the Cell that has continued to give long after the "off-the-shelf" GPU gave up.

Well the Cell was a glimpse of things to come, no mater what happens to the architecture. The problem for Cell in the year 2010 or 2011 is that other architectures will have overlapped its strong points at the same time that they will have a broader support base. I think Cell for PS4 would be a completely viable choice, and I think everyone believes the same. The question is more will going elsewhere provide cost savings vs relying on a narrower manufacturing and R&D base.

Their GPU choice for PS4 I think will play a huge role in determining what architectural needs are required and where silicon budgets will head.

Carl, I'd be interested in hearing what your missteps list is and how many of them have not already been addressed.

I think any true missteps have been discussed here a million times over to be honest, including our present tangent.

 

[obonicus]

I think any true missteps have been discussed here a million times over to be honest, including our present tangent.

Sometimes it seems like these threads pop up every three months.

 

[patsu]

I've suggested this before: They could always go the route of 8 SPEs and loads of regular cores. Backwards compatibility and more developer-friendly.

The cost sunk in PS3 will never be recovered. The dependence on blue lasers for the BluRay drive cost a bundle, both in initial BOM and in insufficient volume to compete with Microsoft early on, leaving PS3 to play catch up for the rest of this generation.

Then you have the debacle with the GPU. It is interesting to read media from three years ago, press reports of Sony using TSMC as a "second source" for RSX. That is putting positive spin on a very dire situation. The truth is that Sony's fabs had a costly upgrade to produce CELL, then sold to Toshiba for a song because it was under-utilized. Makes you wonder. Why second source when you have a half empty fab?

I'm guessing that RSX was such a late contingency solution that they didn't have time to transfer the RSX design to Sony's fab and that TSMC initially was the only source. That however is speculation on my part.

Notice, none of the above is down to execution problems, it is all because of bad design choices.

To sum up, PS3 has:
1. Cost Sony billions.
2. Finished Sony as a semiconductor company
3. Only managed to end up third of the three platforms.

No wonder Kuturagi were fired,

I think it's one way to interpret the events...

In my view, the RSX chip choice and Cell design have their merits. The problem is more with Sony's organizational and execution issues. The software and marketing folks didn't get their hands on the goodies early enough to do their job well. The executives were not on talking terms with the lead man, Kutaragi. Even if PS3 took a different design route, Sony would have faced serious challenges anyway. The economy would still go sour, and I am not sure if the semiconductor business would do well. It requires a lot of $$$ to fight the nextgen chip design war also. I think Sony as a group should try to focus on one thing/platform.

I believe it's still too early to say Blu-ray is a bad thing. First and forth most, PS3 has not been hacked yet thanks partly to Cell, Blu-ray and the firmware combo. There is no need to fight piracy like PSP, Xbox 360, and DS. Secondly, Blu-ray sets the stage for standards play. It is a forum where all media companies are onboard. Whether you want to push 3DTV, decoder, digital distribution, media applications, storage size, etc., it's a good place to look or even start. It helps to set Sony onto a platform path. From consumers and studios' perspectives, it is vendor-neutral... so we are less likely to get stringed along, or coerced into an unfavorable position especially since digital distribution has very stringent DRM. Finally, it represents a growth business right now. Without which, I think "Sony Electronics people" may be in a bigger limbo. The problem here could be: Sony is not exploiting the Blu-ray platform further enough (e.g., Why is Netflix bundled with Blu-ray players without some Sony tech or video services ? Can Apple come in, embrace and "steal" Blu-ray away from BDA ?).

One can argue Sony could have done better by focusing their resources elsewhere. May be, may be not. With the same organizational challenges holding PS3 back, I don't think they can execute well either. Microsoft will still be spending more money to buy exclusives or timed exclusives, they would still engage in price war, they would still have XBL, a lot of cash and their software talent pool; Nintendo will still have Wii. Will a super-PS2-without-Blu-ray do the job ? Sony could compete faster and better, yes; but I don't think it would be a game changer. On top of that, they may have to handle piracy too.

I think PS3 is problematic for Sony because it is at the center of Sony's controversial organizational challenges. PS3, Cell and Blu-ray are victims of Sony's policies. Not the other way round. OTOH, if they could make PS3 successful, they would have also solved many key challenges that have been plaguing Sony Group for decades.

 

[eastmen]

I think it's one way to interpret the events...


I believe it's still too early to say Blu-ray is a bad thing. First and forth most, PS3 has not been hacked yet thanks partly to Cell, Blu-ray and the firmware combo. There is no need to fight piracy like PSP, Xbox 360, and DS. Secondly, Blu-ray sets the stage for standards play. It is a forum where all media companies are onboard. Whether you want to push 3DTV, decoder, digital distribution, media applications, storage size, etc., it's a good place to look or even start. It helps to set Sony onto a platform path. From consumers and studios' perspectives, it is vendor-neutral... so we are less likely to get stringed along, or coerced into an unfavorable position especially since digital distribution has very stringent DRM. Finally, it represents a growth business right now. Without which, I think "Sony Electronics people" may be in a bigger limbo. The problem here could be: Sony is not exploiting the Blu-ray platform further enough (e.g., Why is Netflix bundled with Blu-ray players without some Sony tech or video services ? Can Apple come in, embrace and "steal" Blu-ray away from BDA ?).

I personaly think bluray was the wrong choice for a gaming console. I know why its in the ps3 and I understand how important it was for bluray to be in it for blurays sake.

I just think that one of the major benfits of bluray is reduced due to its ram amounts and transfer speed.

Perhaps if they could have put an 8x or 16x drive in there it could have been better or if the console had gigs of ram . But as it is I don't think bluray was right because of this.

Even next gen it wont work right. Lets just assume a 4gig ram amount in the ps4 in 2012. Your going to have mabye a 12x drive at the most ? Thats still only 54Mbyte/s. It would take over a minute to transfer 4 gigs into ram. Add in seek times and reduced performance when switching layers and your going to have lopsided transfer rates

Personaly if next gen one of the players could make some sort of flash card system with really low seek times and high transfer speeds and keep the cost down it may be a much better way to go for consoles. Even holographic discs would be nice.http://news.bbc.co.uk/2/hi/technology/8021012.stm with a nice 150-300MB/s transfer rate would be great.

 

[patsu]

There are good business reasons to include Blu-ray. It helps to attract people who are not so into gaming. It gives Sony more revenue to hopefully invest in new PS3 stuff.

The technical angle is well debated so far. The extra storage is useful in some cases (e.g., cut down seek time, store more varied stuff). The uniform transfer rate is lower than DVD's peak rate but higher than its lower rate. The peak rate limitation can be overcome by the HDD in every PS3. It is not a showstopper.

 

[RancidLunchmeat]

Personaly if next gen one of the players could make some sort of flash card system with really low seek times and high transfer speeds and keep the cost down it may be a much better way to go for consoles.

I mentioned this in the next-gen console tech thread a while back and it was universally panned due to flash costs never being expected to drop a point of parity with optical discs.

I did, however, see the most interesting thing - a 360 holiday bundle that included some movie (was it transformers?) on a flashdrive. Now, it didn't specify whether or not the movie was in HD, but why include it as a flashdrive and not a DVD if only SD quality?

As you've said, the performance hit for optical drives (or the performance gain in allowing SSD to use more available memory) may make the cost difference negligible - or say, no different than high cost processors or RAM.

 

[corduroygt]

I did, however, see the most interesting thing - a 360 holiday bundle that included some movie (was it transformers?) on a flashdrive. Now, it didn't specify whether or not the movie was in HD, but why include it as a flashdrive and not a DVD if only SD quality?

First of all, the bundle is an expensive one seeing that it'll include an extra controller, it's going to be more than the elite, second, they are giving a bumblebee shaped flash drive, so it all ties in to marketing, you can't have a bumblee themed DVD. The movie could be in SD so they can get away with a cheaper 1GB flash as well.

Disc pressing costs are pennies, while flash drives are at least around 3 bucks for 4GB, and they're not getting any cheaper for 4GB any more, so this is a lower bound. Taking into account that 4GB isn't even as big as the current gen DVD, and as we see in Uncharted 2, games will need more space to ccontain different and beautiful artwork. Assuming you can fit your game in 4GB, that's Over that's 3 million bucks a developer could pocket by sticking with optical media. Flash-drives are not going to be mainstream anytime soon, it'll be blu-ray followed by Digital distribution.

 

[dobwal]

There are good business reasons to include Blu-ray. It helps to attract people who are not so into gaming. It gives Sony more revenue to hopefully invest in new PS3 stuff.

What's the point of adding technology that adds huge costs to your loss leading products to attract consumers who may or not be that attracted to the products or services which are the main drivers of profits. Its like a cable/satellite company adding BluRay to their setup DVR boxes and leasing them to consumers for $5 a month without requiring subscription to the content service.

If you are going to add huge costs to your products to attract additional consumers. It only makes sense that the extra revenue generated by those additional consumers alone should be able to make up for the added costs. The benefits of adding Bluray are hugely outweighed by its additional costs. It only makes sense to Sony because its heavily invested in BluRay tech. Otherwise, Sony would not have employed BluRay in the PS3.

 

[patsu]

It will only be attractive to people who are into movie, with some occasional gaming interest (e.g., people who left gaming long ago). Or a household with a gamer (husband) and non-gamer (wife). Then on a second level, whether developers can make simple games for Blu-ray players when that base is large enough. The Blu-ray hardware cost will decline significantly over 10 years.

As a company, I think Sony has been playing with movie + game as a medium too:
http://forum.beyond3d.com/showpost.php?p=1355390&postcount=804

For other Blu-ray benefits, I think I already posted them above.