*Spin off* Bill of Materials and Cost/Price Reductions of Current Consoles

http://forum.beyond3d.com/showpost.php?p=1097784&postcount=38

 

That's not the reason I'm talking about BOM costs, I can say that. Personally my interest here lies in the cost of the materials and the gains from process maturity, the same as if we were talking about chips out of Intel, AMD, or whoever... and as an extension of that the costs behind Blu-ray I find to be of great interest as well; all of this completely independently of what the retail price of the console is.

But fair enough, I understand that for many it's the promise of price reductions that interests them. In that vein, I'll echo that I feel Sony has a better avenue towards reduction than Microsoft, and that Microsoft has a lower absolute cost structure for the foreseeable future. But if MS lowered to $300 in six months, I think Sony would be able to match the same $50 cut by that time. Anyway both report holiday season earnings in about three weeks, so I would say that if we wait until then we'll have a more updated snapshot of the situation to work with.

 

The fiscal data, imo, is relevant to offset the rampant, "XYZ don't cost that much".

 

"XYZ don't cost that much" is offset more conclusively in other ways though. The fact that PS3 is still a lossy operation is decisively concluded via that means, yes, but it doesn't lend any insights into what costs what, a direction I would certainly enjoy this thread going in. When I compiled the Sony losses back in October, I certainly wasn't trying to shift attention *off* of the subject, I'll say that for sure. Quite to the contrary. But for example... rather than say that the PS3 is lossy and point to financials for the umpteenth time, for this thread it'd be nice to do what we did a year ago and simply run the entire BOM list of components for the new 40GB model and try to work out our own educated guesstimates as to what they may cost.

We addressed Wi-Fi earlier in the thread as something costing probably next to nothing comparatively, and there was some contention on the BD costs. I would say that as other costs, easier to determine, are priced and set aside, the true 'x' factors will begin to present themselves, and we'll have an idea of what range they might be in. Like RAM. In the year 2007, this was not what was pushing them into the red, as there has been a DRAM pricing freefall for the last several months. Cooling was made lighter and less expensive. The Cell went to 65nm. PSU was redesigned. BD assembly changed. B/C-related hardware was removed. Card slots gone. Drive down to 40GB. Motherboard simplification.

Now... on the flip side the price was reduced $200 from the 'norm' $600 price of the launch 60GB; does the 40GB lose less though per unit? So, to me there's a lot of nitty-gritty tech/pricing analysis opportunity here for us to get into.

 

Im not sure why you feel Sony has a better avenue towards reduction than Microsoft.

A 360 made today should be cheaper than a PS3 made today and thats not going to change for some time.

Regardless, how fast Sony can drive down BluRay cost, you unlikely to see a $15-$18 (retail price) BluRay drives like you currently see for DVD drives for a very long time. And PS3es make up 90% of XDR memory sales, while there are numerous other sources including PS3es that can help MS drive down GDDR3 mem prices. MS main limiters in cost reductions are its cpu and gpu. The 360 cpu is of a simplier design so transition to smaller nodes should be easier and less costly. Smaller cost like WiFi that Sony incurs on every PS3es are absense from the 360 and are instead profit generators that are sold as accessories.

Sony price cutting strategy is driven primarily by market survival while MS price cutting strategy seems to driven primarily by a quest of profitability. If MS's was willing to incur the same level of losses as Sony, the 360 would sale at a price lower than its BOM costs than Sony does with the PS3, since it has a greater pool of resources to subidize hardware losses due to higher software and accessory sales and Live gold accounts.

 

We have look at BOM for the umpteenth time and we're are no more reliable in determining the BOM cost of the PS3 as we were for the last year. Financial reports is probably the first area where we will see signs of the BOM of the PS3 getting close it retail price.

Thats the problem, the easier it is to determine the cost of a PS3 component, the less consquential that component is to the total BOM of the PS3. Bluray, RSX and Cell are the biggest contibutor to the overall cost of the PS3 and we're just as oblivious to their cost now as we were a year ago. How can effectively tell how far a Bluray drive has fallen when you don't know the beginning cost in the first place. Looking at newegg prices to determine BOM costs of the PS3 is like looking through a Autozone catalog to determine whats the BOM on a Toyota Camry.

Unfortunately until we hit upon some concrete info, real nitty-gritty tech/pricing analysis is impossible.

 

One obvious point Carl may have in mind is that the larger original die space your components have the larger the gain is from each die shrink.

The smaller the die space is the sooner you hit the point of diminishing return.

The same goes for components that are mass-produced compared to components containing brand new technology. The mass-produced components are likely to be more cost-reduced and available at competetive manufacturers compared to the new component that is heading towards higher volumes.

The XDR RAM is likely more costly than GDDR3 RAM, but how much we don´t know, keep in mind that the Rambus memory of the PS2 was not a big hindrance for the cost-reduction of the PS2.

 

Blu-ray needs more accurate control logic and actuators for moving that OPU around as well. That probably adds another couple of $ to the cost versus DVD.

 

Because the PS3 uses componentry that will reduce in price more dramatically than the more mature components used in the 360, as that technology itself becomes mature. Blu-ray of course is the stand out example here, but as Blu-ray is a big cost for the PS3, I think it's a totally valid exemplar.

And I said the same thing. But I believe that where a 360 might cost $300 to manufacture today and $200 to manufacture by the end of next year (I'm being totally arbitrary here), that doesn't mean that similarly a PS3 that costs $500 to manufacture today costing $300 to manufacture by the end of next year could not be termed a 'better' reduction. These numbers are arbitrary, but I simply want to reinforce that I believe the PS3 will drop its BOM to a larger degree than will the 360 in the coming months/years. I believe the 360 will always be cheaper, but by the end of this gen I would expect them to be approaching parity in BOM costs.

But I'm not discussing price cutting strategy... I'm discussing the cost of the components and the reasonable expectation of their future costs compared to one another.

 

I'd like to point out that aside from the cost of the components of the Blu-ray drive itself you also have to factor in the cost of the licensing fees for the playback software. TBH I have no idea how significant those are, though.

 

Would Sony have to license it from themselves?

 

Yes and the other Blu-Ray partners.

In regards to the 200$ Blu-Ray PC drive.

There has been firesales on Stand-Alone HD-DVD players for 99$ and you can pick up a HD-DVD player today for 189$.
This includes alot more hardware and license fees than on a "standalone" PC-Drive. I think there is a hefty Premium on the Blu-Ray drive and atleast something like 25$ on the software.

 

guys you see this?

http://www.gamesindustry.biz/content_page.php?aid=31993

(maybe in future we would see only ps3 40GB models)

 

Retail is probably happy that they get a chance to clear-out discontinued models before Sony introduce new ones. It makes their business easier, three concurrent models is quite messy.

 

If they started 65nm RSX production in Dec. 2007 then we probably won't be seeing it in PS3's until early or late June 2008 at the best, late August or early Sept. 2008 is probably much more realistic for widespread availability.

Also supposedly XDR prices haven't changed that much since introduction, which is unsuprising as Sony is the only one to use it vs GDDR3 which is used and produced in large amounts by several companies, so its pretty damn expensive relatively speaking. Because of that and the BD-ROM (again, relatively low volume) I think MS is going to be beating the crap out of Sony when it comes to reducing their BOM for a loooong time since so much of the X360 (other than G/CPU, but those are smaller too than PS3's G/CPU) is generic. IIRC the XDR was ~11% of the PS3's total BOM at launch (Isuppli numbers?)....

 

What gives you the impression that Sony owns the bluray licences?

 

How do generic components lend themselves towards cost reduction? They lend themselves to inexpense, but not reduction. For example take the BD drive you brought up, as a percentage of its present cost, what do you think it will cost a year from now? Do the same for the 360's DVD drive and what happens... a year from now that component will likely cost the same amount.

So - you can say that the 360 will "beat the crap" out of the PS3 in absolute costs if you like, but when it comes to cost reduction, there is clearly greater opportunity on the PS3 side.

As for iSuppli, those numbers are insane, please never bring them up again.

 

Yes, obviously, as the starting point of the components is so much higher.

With that said, in the absence of *any* evidence to show sony is making a profit, or even close to it, at the $399 pricepoint. And looking at their huge losses, it would still be my assumption that they are in a far less desireable situation than MS when it comes to price drops over the next year.

My wild prediction is that MS will drop the price fairly substantially this spring, and Sony will not match it, instead concentrating on the $399 pricepoint. This will allow MS to cement it's NA lead, and seal the deal for this generation in North America.

However, if Sony somehow is able to match MS's pricecut, then I think going into Holiday 2008 anything's possible.

Alot depends on the release of GTA as well IMO. If it is delayed till Fall, then MS's spring pricecut will not have nearly as much impact, and Sony would have the opportunity to drop to $299 just before GTA releases in the fall, and reap a ton of hardware sales. I think anything would be possible going forward from that situation...

 

Right, but then again it's the BOM that is the topic of the thread afterall... which is why I felt it deserved highlighting.

As for price reductions, personally I believe that on a cost basis Sony should be able to keep pace with MS in terms of the present $50 spread between the premium and the 40GB. Now, factoring in MS' stronger position in terms of software sales and accessory sales, obviously they have a greater cushion/leeway with which to act, but truly I think we should just wait the couple of weeks for the earnings from both companies, as I have no doubt that we'll get a new set of insights into what is going on on the cost reduction/hardware profitability side for both. Certainly there's no price drops coming in the next three weeks, so I think we're well positioned in terms of analysis.

 

Economies of scale...volume beats niche any day, we are after all talking about mass manufacturing. Also I don't see why you keep harping on cost reduction as a percentage, it seems so academic and pedantic. Sure, they'll probably reduce costs more as a percentage vs X360 from launch, but in the end its how much it costs to make the thing that matters most and I don't see PS3 ever being cheaper than X360 to make.

Pointless comparison as that DVD drive will probably still be significantly cheaper than that BD-ROM. I wouldn't expect BD-ROM drives to approach the cost of a DVD-ROM until near end of life for the PS3 as DVD is mature. Why do you keep bringing up DVD drive costs and stuff anyways? They're so cheap now that I bet it costs almost the same amount to make the case and stuff, which is marginal compared to other things like the G/CPU and RAM which still have plenty of room for shrinkage which will in turn lower cost req. for the PSU and mobo. THAT is where the big savings will be over time for X360...

So if Sony reduces prices more percentage wise but X360 still costs significantly less in the end the X360 "loses"?! Phhhht, academic nonsense...

My understanding was that the prices they listed were way off but percentage wise they were fairly accurate, is this wrong?