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Dodece said:

The general consensus was that Sony was losing two hundred dollars on each machine when the system launched.

Halting production would drive costs up and increase losses in efficiency.

 

The launch machines may have cost $800, but Sony reduced its manufacturing costs very, very fast - the hardware has already gone through two major revisions. The BluRay drive cost $140 originally, and is now less than $20, all the other parts have dropped 30%-40%. The PS3 probably costs $550 to make right now. Note that Sony is already making money on its European sales (599EUR = $730 US), so they have room to drop the price.

The price drops are for the EU and Japan - the 80GB model will go down to 499EUR, and the 80GB will replace the 60GB in the US (the former will be marked down from $599 to $499, the latter disappears - so you get more HD space for the same cash). It may not happen at TGS, of course - they may wait until late October or early November.