Confirmation on $399 PS3 (link inside with pictures)

[NJ5]

SlorgNet said:
If the price cut is for real, then Microsoft is in deep, deep trouble, because Sony is going for the jugular. 399EUR/US$399 is a mass market price, the equivalent of $299 in 2000 dollars, and the PS2 didn't exactly collect dust on shelves in 2000. It's only $50 more than the 360, erasing the latter's price advantage.

But won't Sony bleed money like crazy? Nope.

A big part of the cost of the PS3 (maybe $120) was the Bluray diode, and that's gotten vastly cheaper - it's probably not more than $20 today. The EE chip will be removed, that's another $27 saved. Electronic components fall 30% a year, so the original $800 manufacturing cost of the PS3 (this is iSupply's estimate, not mine) should be down to $460 at most.

They won't be losing big bucks at this price. Remember, many shoppers will be buying the $499 high-end 80GB systems, and 399EUR equals US$559, 1 EUR = 1.4 dollars. Small loss in US + small profit in Europe = breakeven.

Your post contains a fundamental contradiction - if Sony won't bleed money, why would MS be in trouble? The 360 has been in the market for much longer, 65 nm chips are appearing, MS is a much richer company, etc.

But let's ignore that and go straight to the fundamental question: "is Sony going to bleed money with this move?"

The most informed answer we can give right now is "yes, you bet your ass it will bleed money". In the last financial report press conference, Sony said that they weren't expecting to achieve profitability in hardware any time soon, most likely not until the end of the fiscal year (which is in March 2008). They attributed their big losses in the games division to "strategic pricing of PS3 hardware below production cost". The measures that they are taking in order to lower the production cost as much as they can, even eliminating backwards compatibility (which is a really important characteristic for the PS3, Sony has said so for a long time) show us that they are indeed desperate about money.

If you believe most hardware surveys, the most famous of which being iSuppli's, they were losing more than $240 in the beginning. Even if it's true that they're saving $100 on Blu-Ray, a few dollars on USB ports and the smaller disk, and about $20 on the GS, that still leaves a $100 gap between production cost and breaking even on a $600 model. Meaning that there's a $300 gap between production cost and a $400 model. Do you think they have saved a FURTHER $300 besides the savings I mentioned above? It's utterly impossible, and I'm sure you'll see many analyses saying the same after Sony does this move. There was never such a fast price drop in the history of consoles, even if you give a slack of $100 for supposedly easy savings on the Blu-Ray drive.

REGARDING EUROPE - if you take out VAT, import taxes, recycling fees and higher retailer margins you'll end up with virtually the same amount of money as in the US. So no, Europe is not going to save Sony's finances. If they actually price the European PS3 at 399€, that's a 33% price cut 7 months after launch, and with no Christmas in between! It's unheard of, and it must be reasonably attributed to Sony's desperate eagerness to sell more PS3 consoles.