Recession allows cheaper PS3 production?

[amirnetz]

The costs of production generally goes down over time.

The main driver for cost reduction is volume production. The more units produced, the faster the fixed costs of setting up the manufacturing line are ammortized and costs can go down.

Your theory is that a recession will make it easier for Sony to get its components cheaper and reduce labor costs. But this is much harder done than said. Most of the component are specially manufactured for Sony and their prices are guarantied with long term contracts. There are relatively just few "off the shelve" parts that Sony can buy from any manufacturer. The Cell, the BDR, the casing, the circuitry assembly lines, the power supply and fan were all designed specifically for the PS3 under the promise of volume manufacturing. Labor costs are rates are not very flexible. Hourly wages do not go down easily, recession or not.

As part of such typical supplier contract are the accelrators for price reduction. Basically, the more Sony orders from a supplier, the lower it's price drops as the supplyer is recapturing his initial setup costs. These contracts were no doubt done with a PS2-line production volumes in mind and Sony expected rapid cost reduction within a year or two. But the PS3 sales are much slower than the PS2 and therefore the cost reduction is much slower than Sony had anticipated. Now Sony is trapped in a vicious cycle: Sony does not sell enough to reduce its cost fast enough, and therefore it is less uncompetitive and sells even less than before, slowing the cost reduction further.