What is the true cost of manufacturing the PLAYSTATION 3?

XBD, nice breakup on losses. I have been suggesting the same thing but it is nice to see a detailed break down like your that explains it. Very well done and I think it dovetails well with the claimed 360 losses and differences within the machines.

Btw, any word yet on the Sony PS3 marketing campaign costs? In the past the big three have discussed how much money they would be investing in marketing. I have not heard anything yet.

 

Ooops. Thanks for the correction.

In the book says 15,24cm for the waffer.

 

It was somewhat of a tongue and cheek remark. The reality though is that such expenses are considerable and must be accounted for. What is the point otherwise? If Sony spends $2 billion on building a fab just for Cell and over its lifetime make 100 million of them then right there you have a cost of $20 per chip which must be accounted for (not including other expenses).

There is a world of difference from paying to funding. Just because something is paid for now does not mean it is expended now.

The point I am trying to make is that it really is impossible to guess the true cost of the PS3. Sony's accountants must love (or hate) the overlapping expenses. What division do you expense BD development to? What percentage of BD licensing fees and royalties go towards the the gaming division? I would like to know the breakdown of the the $850 million projection. Sony could have been very conservative and amortized the expense over a short term (5 years?). Or they could have been creative and expended it over 10 years and moved some of the cost to other divisions.

 

Well, the fab is a bad example to use, because the fab is an asset with utility beyond Cell. To tie it inexorably to PS3 production is looking at it entirely the wrong way. So no, I don't think $20 per chip is the way to look at it in the least. Rather, how many chips will be fabbed at these plants over the course of their existence?, will they ever be sold?, what value will be retained?, will they see use in the next Playstation or for other Sony products/ICs?, etc etc...

Building a fab would be a plant and equipment expenditure also, and not R&D by the way, so if you want to talk R&D let's talk R&D; if you want to expand it to plant and equipment, well ok let's do so formally.

No, but it does mean it will not further contribute to losses going forward.

The thread is about manufacturing costs, afterall, and not development costs that have already been paid.

This is par for the course for most industries; it's hardly unique to Playstation. Afterall, when were 360 R&D expenses paid? They were part of that $4 billion MS lost during the XBox tenure. Same with anything. If Samsung is paying ~$100 million in LCD TV R&D this year, the fruits of that labor won't be seen until next year, etc etc...

As for BD, obviously the R&D there isn't going to be Playstation at all, but rather the optical division, whatever realm that falls under (I guess under the larger consumer electronics umbrella). I doubt any of the format licensing fees/royalties will go to SCE, and if so, then only based upon whatever structure they determine via sub-licensing, as in that case SCE will be further responsible for payment to Sony proper.

 

xbdestroya,

I should have been more clear. I mentioned R & D and an example of expenses that must also be accounted for. Sorry if I was not clear.

Again that depends on how the cost was amortized. I don't know if you have access to Sony's financials in order to state that as fact. Usually it is prudent to carry forward such expenses to lessen tax liability on upcoming years. Jurisdiction, though may make this assumption wrong though.

Of course. At the end of the day the true cost are not known until the product reaches its end of life. Add to the mix creative accounting and the answer is still kind of gray.

 

I agree with you here Nelg, but at the same time... I mean, what does it all have to do with the manufacturing costs?

I don't think anyone here is trying to predict the ultimate cost of the console over ten years of production and a precursor five years of R&D, along with the plant and equipment costs associated with such. We're just trying to narrow down at launch, how much will these consoles cost Sony per unit to manufacture?


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Acert good point with the marketing expenses by the way; yeah no indication so far that I know of.

Marketing and R&D over the course of the year, as well as expenditure on big ticket items like an online infrastructure, may in fact point to a lower loss per console than originally thought, and a larger ratio of one-time costs associated with the PS3 launch seperate from the consoles themselves.

 

So according to your estimate they plan on cutting even or making a profit on the console then....no. Just no. They dont set launch prices like that to have a ball(party) making tons and tons of money from a worthless peice of hardware. They need LOTS and LOTS of games sold, and that means they need to spread Playstation 3's like a mutagen virus. At the current prices and launch number estimates at those prices they will have a small plague. Hope you like my analogy.

500-600 is what it costs to build premium Xbox360s currently. The BD rom alone is in fact going to cost Sony $200-$250 each. Cell should be 30-40% more expensive then Xenon assuming equal yields. How you get anywhere close to the Xbox360 premium component cost total is beyond me. ML is problably right on the money with the ~800 figure. Of course you can proclaim what ever you like, i dont like to disagree with the same person on the same topic more then once. Makes things tedious.

 

EDIT: Ok, well I've given the reasons why I think the losses per console will likely be in the ~$150-175 per unit range, but at the same time that doesn't mean a straight addition to the $499 and/or $599 US retail prices to reach a BOM. Just like everything else under this model needs to be averaged, to reach BOM we would need to average and normalize to yen (and then convert back to dollars with an exchange rate caveat) the number of units out of that 6 million to be shipped to each territory with their non-VAT inclusive pricing taken into account.

This is obviously beyond our abilities without shipment estimates, but who knows, perhaps it will get the premium PS3 closer to a $800 BOM figure. Of course M-L deals with essentially a different console entirely (no HDD for example), so I'm as always adversarial to their figures and estimates, even if a case can be made for a BOM similar to the one they estimated.

 

Completely OT but that was funny as hell. +1

 

Further to the above train of thought, here's what we have to work with in terms of global retail pricing for the PS3, put in both yen and normalized to the dollar.

In Sony's Fiscal 2007 Estimates, they assume a dollar exchange rate of 113 yen to the dollar, and 136 yen to the Euro - so we'll go with those for the sake of this math. For the Canadian dollar we'll arbitrarily use todays rate of 102 yen per dollar, and for the UK todays rate of 211 yen per BPS. Australia we'll use 85 yen to the dollar. We'll also go with a 17.5% VAT average for Europe unless someone has any better ideas. (I'm a VAT neophyte)

So we have Sony's retail take on:

The US 20GB at: 499 US and 56,387 yen ($499)
The US 60GB at: 599 US and 67,687 yen ($599)

The Canadian 20GB at: 549 CA and 55,998 yen ($495)
The Canadian 60GB at: 649 CA and 66,198 yen ($586)

The European 20GB (sans VAT) at: 425 Euro and 57,800 yen ($511)
The European 60GB (sans VAT) at: 510 Euro and 69,360 yen ($614)

The UK 60GB (sans VAT) at: 360 GBP and 75,600 yen ($669)

The Australian 20GB (sans GST) at: 750 AUD and 63,750 yen ($564)
The Australian 60GB (sans GST) at: 910 AUD and 77,350 yen ($685)

Japanese 20GB at: 59,800 yen ($529)
Japanese 60GB at: something more than 59,800 yen

So at the moment, it seems that Euro and US pricing are about the same as far as Sony goes, and Canada actually seems to get the best deal of them all right now. UK and Australia end up paying a little bit more.

 

I do get your line of thought, I just don't believe that it'll be more expensive than $700 to make. Surely the games are what makes money, but $1000 for the PS3 is way off IMHO. I also don't believe that the BR-drive will cost anywhere near $200. Maybe in the first month or two, but as soon as the mass production takes off, it'll go down to <$100. The RSX should be dirt cheap to produce as well, looking at G71 cost.

So it might be more expensive in the first few weeks/monts of production, but that will go down very fast IMHO.

Just guessing here of course, but that's been my experience in electronics development over the last ten years or so.

EDIT: actually, I think the estimate in the first post is quite accurate except that I'm not comfortable with $250 for the BR-drive.

EDIT2:

Also, don't forget that Sony will produce both Cell and RSX in their own plants for the most part, while MS outsources the production and thus has additional costs.

 

I think we can reasonably make an educated guess on most of the part for PS3. I think the Blu-Ray Drive is around $100 to make(just the drive by itself, sans the decoder and other components required to assemble the Blu-Ray player). But in contrast, the first gen Blu-Ray players will get the $1,000+ price tag, not because of the cost of the actual parts but for the premium charge of owning the newest HD player technology has to offer in a marketshare. The only real question that needs to be answered is the cost of Cell.

RSX $100
Cell $???
Blu-ray $100
Memory $60
HDD 20 gig $25
HDD 60 gig $40
USB Ports $5
wifi $10
bluetooth $15
misc. components $75
Shell $15
Controller = $15

Edit!!!
I personally think that Sony is only willing to lose $100 per system max.

 

You might not care but there's two pages worth of discussion already, so it seems some people do. I hate these "who cares!" type of posts. If you don't care for the topic, don't post on the thread.

 

Cell: 170$
RSX: 80$
XDR: 60$
GDDR: 25$
Motherboard and connections: 30$
Box: 10$
PSU: 50$
BD-ROM: 125$
HDD 20GB: 20$
HDD: 60GB: 50$
WiFi: 1$
HDMI: 1$
Controller: 12$

 

Btw, this has been discussed in a lot of depth before from various angles. My guestimate is #63 although knowing more about Sony's projected losses and re-established shipping numbers (and dual SKU) for fiscal 2006 would add another layer to my projection.

 

I'm going to say the cost of producing the parts for the PS3 is somewhere between $400 to $600. I doubt they're losing money (at least not on the premium model), especially when the cost to produce what the PS3 has over the xbox 360 probably doesn't add up to the several hundred dollars increase in cost. The PS2 was designed to break even, and did within a few weeks of launch, I'd imagine the PS3 was the same.

 

Fox I think you're way too optimistic here. (and PS2 didn't break even within that short of a timespan either)

SCE has predicted a loss of ~$850 million for the year due primarily to the manufacture and sale of 6 million PS3's; I see no reason to doubt their internal estimates.

 

http://www.actsofgord.com/Proclamations/chapter02.html

This website disagrees, though there's some thing on the website I'm really not sure if they're right, so I'm not sure how accurate this site is.

 

Well, I can't speak to that website - I myself have always been in the 'sold at a loss in the beginning' camp, but as the years go by I'm not sure where to find the factual supports for that position.

Anyway whatever the case with PS2, there is no way that SCE could be predicting that sort of loss on the year, and yet the PS3 be a breakeven product at retail. It would be the mystery of the age.

 

What I´ve been thinking recently is that Sony wasn´t positive on the losses they´d have to suffer, since the final price wasn´t set, they offered an estimation. At the current price, I really doubt PS3 is selling at much of a loss, if any.