That's a pretty big assumption. Sony can’t keep on eating a fixed #$ loss on the PS3 for perpetuity, and even if they attempted to, Nintendo would be pretty damned stupid to keep their current #$ profit in the face of such a strategy from Sony.
We sez: "Future Console Revisions - 360, Wii and PS3"
- Thread starter Farid
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That was an assumption just to make the numbers easy
They won't. Even in my example, I did the cost reduction relative to retail cost (ratios). Take the 360. lets say it retails for $300 but costs MS $500. If they can cut the cost by 33% with chip reductions, even if they cut the retail price by 33% from $300 to $200 (a cut of $100), the same 33% drop of actual costs at $500 would being them down to $330 -- a $170 total reduction. Assuming a $100 price cut, MS would actually be losing LESS per unit ($130 instead of $200).
I think it is obvious that MS and Sony won't subsidize at the numbers they did at launch, but in the same economies of scale affecting new hardware as well as the benefits of cost reduction through process shrinks and redesigns and architectural changes will have a huge benefit--especially in the first step. The move ftom 65nm to 45nm won't be quite as dramatic. But looking at the PS2 as an example, Sony was able to shave money off every year. This is due to the contiual maturation of production processes, maturity of technologies, economy of scale, and so forth.
Sony obviously has a standard HDD to deal with as well as EE/GS and getting BDR costs down. But MS followed the GCN model in many ways and we say how fast Nintendo could reduce the cost on such. Wii will ALWAYS be the cheapest, but it won't drop as quickly as its competitors. Of course I think it is nearly $100 overpriced as it is...
Welcome to the free market.
If a foundry tries to over-charge MS they'll take their business elsewhere. The only worry MS has, is lack of foundry capacity over a longer stretch of time since that would push prices up.
Sony on the other side has to shoulder all the costs associated with maintaining a fab themselves.
Cheers
Not quite, the chip would have to be redesigned to work on a different process, that in itself will take close to a year and cost millions. There's also only a limited number of fabs capable of producing that sort of chip.
And the advantage of nobody else getting profits from it.
One thing nobody is mentioning is chip prices rise exponentially with area, Sony will see a bigger saving by moving to to 65nm than anyone else simply because Cell is so big. Nintendo on the other hand will see relatively little saving.
There's also further optimisations that can be done at one process node, Sony did this on PS2.
We may see a second size reduced Cell on a 2nd generation 65nm process.
Sony is also making money from Cell and BluRay royalties, not just games. While they will want to get the PS3 profitable ASAP they're going to be making money in other ways which the other 2 aren't.
I wasnt even considering overcharging, just the fact that a foundry has to make a certain profit out of a product that it sold to MS, as I'm sure even MS understands. This profit is then included in the price of 360, and cannot be shaved off. If a foundry makes now 5$ profit for a chip that costs 40$, and the cost of the chip is cut to 20$, they will still want to make 5$ out of it, since they invested in new tech and so on... It's not much, but it adds up. Anyway, MS is in a much better position this time around, as ad least they own the desing. Swithching suppliers is not that easy - there are lots of QA issues that can make this shift actually more expensive.
Sony has the advantage of working at 0 profit margin on most of the components - even better, they can share some of the costs with other projects.
My thinking is that Sony has launched at an already break-even/profitable price point. I have read the BOM from iSupply and others - but it find it overstretched. Actually nobody, not even Sony's highest ranked accountants, can make an accurate BOM of the PS3, as there are too many variables that you may or may not include in each of the components. I assume Sony's logic is to milk about 7-10 mil at this price, and the cut the price more aggresively that in the past, in several steps (as harware revisions will kick-in, but even without them), and in about a year after launch, get within 50-60$ of 360premium (probably 250$ for the 360premium and 300$ for the PS3core next Xmas).
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Fair enough.
However foundries are more likely to be more cost-effective since they run closer to full capacity. Given the capital expenditure needed to keep a state of the art fab state of the art, you'd want to run it as close to maximum capacity as possible.
As for switching designs: You're right, it's not easy, and I'm not suggesting MS switching suppliers on a whim. I'd expect them to have long running contracts at cheap prices. I'd also expect them to start getting offers from various foundries right after they've negotiated the first contract in place for the next technology node (65nm) and start converting the design to who ever wins' proces.
I seriously doubt they operate their micro-electronics unit in this pink commie bastard fashion internally. The micro-electronics division needs to be profitable unless it provides an important strategic advantage.
Cheers
Is there anything more strategically important for Sony right now than the PS3/Blu-Ray? They seem to put their whole company on this bet.
Other than blue diode lasers, there's nothing in PS3 that couldn't be supplied by foundries.
Cheers
They didn't produce CELL in a joint venture with Toshiba?
With Toshiba and IBM, but I think everybody has their own fab - or have they?
The designed it with IBM and Toshiba. It could be manufactured at a number of different foundries.
Cheers