A recent teardown analysis from iSuppli revealed that Sony loses about $31 per PlayStation 3 console sold in the United States. Here’s the skinny:
The new PlayStation 3 with 120GByte HDD model is priced at $299 in the United States — which means Sony sells each PlayStation 3 in the United States for $31.27 less than its materials and manufacturing cost.
In comparison, iSuppli’s Teardown Analysis Service determined that Sony sold the previous-generation PlayStation 3 for $49.72 less than its manufacturing and materials cost, based on pricing from October 2008.
So even though the PS3 Slim costs $100 less than last year’s model, it loses less money per system than its forerunner. Keep in mind that iSuppli’s analysis does not factor in “software, box contents and royalties”. As it continues to make its manufacturing processes more efficient and parts continue to come down in price, it’s possible that Sony can sell the PS3 at a profit come this time next year.
Bu, bu, bu, but it's overpriced!
I've never believed that any of the big three have ever lost money on hardware sales. I truly think that it is the biggest gaming myth ever, perpetuated by Sony and Microsoft as a PR ploy to make gamers more sympathetic to the company.
This myth, like any other, has it's roots in reality during the final dying weeks of the SEGA Dreamcast. Since that point, other hardware manufacturers have taken up the mantle of "Oh, look how much we care about the gamers by selling the console below price" poor victim mantle.
Show me the actual profit and loss reports and financial statements from Sony and Microsoft that shows the loss in hardware minus any discounts.
-M
@Iceman No, it's pretty common for consoles to lose money over the first few years. You're talking about a lot of new parts and processes. Over time, they generally reach profitability. Of course this doesn't count the millions in research and development used to make these consoles.
Of the current three, only the Wii was profitable out of the gate. Although a lot of its parts were old and underpowered compared to the competition, that's pretty remarkable.
OK, I know I'm not going to convince you that these companies make a profit on the hardware despite what they say, frankly because I have no concrete evidence to prove it.
But what I would like to know is how you came to believe that these companies loose money on the hardware. In other words, let me read what you have that convinces you that they take a hit on the consoles so that I can see it from your point of view.
-M
@Iceman Look at the teardown costs from sources like iSuppli. You can find year-to-year teardowns and costs there. When you factor in R&D, it's extremely rare for a company to make money on a console at launch.
iSupply doesn't take into account bulk buying though.
@Smartguy Nor does it take into account R&D, included software, and other expenses. Nobody said it was an exact number, but it's a pretty good estimate.
@ray
estimates are strange in accounting. you can change useful lives and amortization since they are changes in estimate. really…..i can make it look like the ps3 turns a profit or a huge loss. remember in accounting 2 + 2 = what would you like it to equal.
i see where you are coming from though.
@Smartguy;
That is exactly the point I am trying to make. Manipulative accounting can make it seem like consoles are being sold at a loss. Every fiber in my being screams that this is a lie. I've been in surrounded and immersed in business and business management literally all my life. I know how easy it is to do as you say because I've seen it done with my own eyes. I've seen properties that aren't worth the dirt they have on it made to look like a prime income-producing property.
The only way to know for sure is to look at Sony's and Microsoft's ledgers. iSuppli can't have access to that, can they? Unless you work at those companies' accounting department, we will never know the REAL numbers. Everything else is speculative. But one of the basic rule of thumb for business is that the bigger a company is, the more complacent they are and less risks they take. Smaller businesses have to be more aggressive and thus, take more risks to be able to play with the big boys. Smaller companies are also more nimble and are able to adapt to market conditions quicker. (Case in point; look how long it took Sony and Microsoft to come out with motion controllers after Nintendo struck gold with it). By this logic, it makes absolutely no sense for two huge multi-national companies (Sony & M-Soft) to take such a huge risk by having a potential loss in the millions of dollars just to make it up later with software and accessories. As much as we all love to joke around of how much money these two companies have, in reality, they have limited resources and have to make the absolute most of those resources. Selling hardware at a loss equates to squandering boat-loads of resources on a gamble that may or may not pay off. No big company would ever do that unless their backs were up against the wall.
No, my friend, the more rational conclusion is that the PR people at these companies saw an opportunity to get gamers to sympathize with them, so they decided to roll with it and feed the gamers' perception that consoles are sold below cost. That way, they can be all like; "Look at us, we love our gamers so much that we are willing to make something they love even if it means we have to take a huge hit because that's how much we love games and gamers." And unfortunately, most of us are like "Aww, look at these big guys taking a loss to feed our passion and our hobby. We love you for everything you do for us, Microsoft and Sony."
-M
@Iceman I really don't buy your whole premise. You really think it's about generating gamer sympathy? You think that's more important than shareholder perception? No way. If anything, the accounting would be manipulated the other way to appeal to investors and shareholders.