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Sony is actually probably making money on each console sold, for the first time this quarter, since the 80GB model's release. Its likely a 65nm CPU and 65nm GPU, it lost all the PS2 BC hardware, it lacks a lot of the spiffy extras the old 80GB had (SD port, 2 extra USB ports, etc).

I wouldn't be at all surprised if $399.99 actually turned a profit for each of the new 80GB PS3s sold, albeit a small one. Sony should not drop the price, until they can cut the costs of building the machine to cover it.