Sony's loss is at least $240 on every PS3

November 16, 2006: 7:04 AM ET

Sonyps3Sony (SNE) will lose $241.35 on every PlayStation 3 game console it sells at $599, and $306.85 on every console it sells with a smaller hard drive at $499, according to an analysis of the component costs conducted by iSuppli, a research firm.

That's a staggering figure that is sure to influence how this round of the console war plays out. (In perspective, Sony will take a loss equal to the retail price of a Nintendo Wii every time it sells a PS3.)

It's not unusual for console makers to lose money on the game console itself, expecting to make up for that by selling multiple games later. Sony and Microsoft (MSFT) both have employed that strategy in the past to get more powerful consoles into the hands of gamers.

But this time around, Microsoft will make $75.70 on every Xbox 360 it sells, not counting marketing and distribution costs. So while Microsoft won't need to sell a set number of games to cover its build costs, Sony will have to sell five to seven. That is a high hurdle. This is corrected from an earlier version that said Microsoft will lose $75.70 on each Xbox 360. Thanks, Mike, for the catch.

(iSuppli analysts found a Seagate hard drive in the PS3, as we noted that they would.)

"The reason why the PlayStation 3 is so costly to produce is because it has incredible processing power," said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. "If someone had shown me the PlayStation 3 motherboard from afar without telling me what it was, I would have assumed it was for a network switch or an

enterprise server."

It may be that Sony is giving gamers incredible power for the price, but from a business standpoint it's also taking a big financial risk. One could argue that if Sony needs to sell so many games to make a profit, its game system experience had better be orders of magnitude better than Microsoft's.

I'll leave it to you, good readers and commenters, to judge whether it is. In the chart below, iSuppli's component cost breakdown. It doesn't include the controller or the packaging.

Description Manufacturer 20 GB 60 GB

Reality Synthesizer Nvidia (Sony) $129.00 $129.00

IBM Cell Broadband Engine IBM (Sony) $89.00 $89.00

I/O Bridge Controller Toshiba (Sony) $59.00 $59.00

Emotion Engine and Graphics Sythnesizer Toshiba (Sony) $27.00 $27.00

Noteworthy Memory - XDR DRAM (4 x 512Mbit) Samsung $48.00 $48.00

Other Components and Manufacturing N/A $148.00 $148.00

Bluetooth Module Sony, Featuring CSR BlueCore 4 Chip $4.10 $4.10

Optional 802.11 b/g Module Marvell Chipset N/A $15.50

Other Components and Manufacturing N/A $2.50 $2.50

Memory Card Board N/A N/A $5.00

Blu-Ray Optical Drive Sony $125.00 $125.00

SATA Hard Drive Seagate $43.00 $54.00

Power Supply Sony (Private-Label) $37.50 $37.50

Cooling / Mounting Cage for Motherboard N/A $22.00 $22.00

Enclosure / Hardware N/A $31.00 $33.00

Miscellaneous Other Assemblies N/A $1.75 $1.75

Manufacturing Costs N/A $39.00 $40.00

Preliminary Total Console Cost Estimate $805.85 $840.35

Suggested Retail Pricing (US) $499.00 $599.00

Difference Between Cost and Retail Price $306.85 $241.35

Source - iSuppli Corporation November 2006

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