Yesterday, Sony issued a dispiriting April-June earnings report,
which showed quarterly PlayStation 3 sales fell from 1.6 million to 1.1
million. The PS3's slowdown is ironic, as it appears to have come just
as Sony got its console manufacturing house in order. In an
English-language conference call following the earnings report, Sony
CFO Nobuyuki Oneda was asked by an analyst to "give a sense of how much
you've reduced the [PS3] cost to build since inception."
Oneda's response was vague--at first. "The cost reductions since we
introduced the PS3 are very substantial and on schedule," explained the
executive. "We don't disclose how much of the PS3 cost reduction was
specifically achieved during the past two years. But that is on
schedule."
Then, Oneda decided to throw a number out. "About 70 percent, roughly speaking," he said.
As its CFO indicated, Sony does not give out an exact production
cost for the PS3. However, a hardware research firm has offered
unofficial estimates on a regular basis for several years. Last
December, iSuppli estimated that Sony spent $448.73 in parts and labor to make each $399 80GB PlayStation 3. The number was down from an estimated production cost of
the now-discontinued 60GB PS3 model, which
had backwards compatibility with PS2 games. iSuppli estimated that model cost $690.23 to make in mid-2007, when it was priced at $499, and $840.35 to make at its November 2006 launch, when it cost $599.
If Oneda's 70 percent figure is applied to iSuppli's $840.35-per unit launch-cost estimate for the PS3 (which has not
been confirmed by Sony), the savings are a substantial $588.25 per
unit. By that calculus, Sony would spend $252.10 to make each new PS3,
the base model of which sells for $399. Theoretically, that would
generate a $146.90 profit per console, not including packaging,
transportation, and other costs.
While the combination of iSuppli estimates and Oneda's comments are
interesting, they are by no means official. Indeed, earlier this month,
Sony CEO Sir Howard Stringer appeared to scoff at the idea that PS3 hardware was currently profitable. In response to Activision CEO Bobby Kotick's call for a price cut for the console,
the Wales-born Stringer quipped, "I lose money on every PlayStation I
make--how's that for logic?" Furthermore, the newly formed division
that contains Sony Computer Entertainment lost ¥39.5 billion ($415.6
million) last quarter--more than Sony's overall loss of ¥37.1 billion
($390.3 million)
However, there's a good chance that Oneda was referring to PS3s Sony is making right now,
not last quarter. And one possible reason for the "substantial" PS3
production savings could be a reduction in materials resulting from a
shrinking of the console's form factor--which has already been widely
rumored. Sparked by an apparent photo leak in May, the past few months have seen widespread, repeated speculation about a 120GB "PS3 Slim," similar to the slimline PlayStation 2 introduced in late 2004. Though Sony offered no comment on the photos, a mysterious Taiwanese law firm sent cease-and-desist letters to several online news outlets that posted them.
