Apparently "American-centric" is a new synonym for "factual."  Funny stuff - 5 weeks of winning Japan, where the console market doesn't matter anymore, is enough to make people think the PS3 is actually competing.

That's not how a cost/benefit analysis works (if I understood your post correctly).

First of all, we can ignore the manufacturing cost reduction of the slim, since that will happen with or without the price cut (it just confuses things to include it). Second, you should only count software and accessories from the PS3 buyers who bought the PS3 because of the price cut, the other buyers would have given that profit with or without the price cut.

Two scenarios to explain what I mean:

Baseline scenario: No price cut, and Sony sells 9 million PS3s, and getting a certain profit from software/accessory sales. Specific numbers don't matter for a comparison, hence "baseline".

Price cut: A $100 price cut halfway through the year, when 4 million PS3s have already been sold. After the price cut, for the rest of the year 9 million PS3s are sold instead of 5 million (for a total of 13 million). So Sony loses $900 million compared to scenario 1 on the hardware side (this is the "cost side" of the analysis). Of course, more software is sold during the fiscal year due to the higher HW sales. Let's take your $80 profit estimate for the year. The additional userbase gained from the price cut is 4 million, which has the benefit of generating 4 million * $80 = $320 million. The $80 from the remaining 9 million is not counted, since that's also in the baseline scenario.

As you can see, the difference between the two scenarios is a $580 million loss. Of course there might be some additional savings from raising HW production volume, but that will certainly not eliminate all this loss.

That's not how a cost/benefit analysis works (if I understood your post correctly).

First of all, we can ignore the manufacturing cost reduction of the slim, since that will happen with or without the price cut (it just confuses things to include it). Second, you should only count software and accessories from the PS3 buyers who bought the PS3 because of the price cut, the other buyers would have given that profit with or without the price cut.

Two scenarios to explain what I mean:

Baseline scenario: No price cut, and Sony sells 9 million PS3s, and getting a certain profit from software/accessory sales. Specific numbers don't matter for a comparison, hence "baseline".

Price cut: A $100 price cut halfway through the year, when 4 million PS3s have already been sold. After the price cut, for the rest of the year 9 million PS3s are sold instead of 5 million (for a total of 13 million). So Sony loses $900 million compared to scenario 1 on the hardware side (this is the "cost side" of the analysis). Of course, more software is sold during the fiscal year due to the higher HW sales. Let's take your $80 profit estimate for the year. The additional userbase gained from the price cut is 4 million, which has the benefit of generating 4 million * $80 = $320 million. The $80 from the remaining 9 million is not counted, since that's also in the baseline scenario.

As you can see, the difference between the two scenarios is a $580 million loss. Of course there might be some additional savings from raising HW production volume, but that will certainly not eliminate all this loss.

sony might

Apparently "American-centric" is a new synonym for "factual."  Funny stuff - 5 weeks of winning Japan, where the console market doesn't matter anymore, is enough to make people think the PS3 is actually competing.

Your math looks weird: let's define the current situation the baseline with a phat console losing $40 per piece, and going to sell another 5M during the year.

a) If Sony sells 9M slim at $300 (cost 350) instead of 5M phat at $400 (cost 440) the profit is 9M*(-$50) =-$450M instead of 5M*(-$40)=-$200M. Thus if they are losing $10 more per slim console sold, they are losing -$250M more than the baseline. As you yourself calculated, the increased userbase generates $320M more, ie the net result is +$70M over the baseline.

b) If they reduce production costs by $90 and keep selling it at $400 (cost 350), they make 5M*($50)=+$250M instead of -$200M =+$450M over the baseline.

Thus not cutting price the difference in profit is only $450M-$70M=$380M, not $580M. And while that could still look like some healthy extra profit to have in the bank, it will easily be offset by the extra money you make in the following year from those extra users through game licenses. For example let's say each user buys 3 games a year, lets go into the second year of price cut: that's 4M*3*$20= $240M. Next year it will be 8M users over the baseline= extra $480M for the second year, and I think we're being conservative here by stating that each user brings Sony only $60 a year (first party titles bring more profit, increased BluRay market brings royalties, other accessories, PSN download royalties, some small Home stuff money)

Basically with these numbers not having the pricecut makes you more money only in the first year, but you're losing the money that comes after about 18 months with the expansion of your market.

Different numbers will lead to this time being longer or shorter, but the outcome fundamentally has this "shape": more profit short term (no price cut) or more profit mid and long-term. If the cost reductions or the per-user income are bigger than what we supposed then that mid-term is actually more like a short term (less than a year), and I can't see Sony not choosing the price cut option even in their current financial situation and facing their shareholders.