Convinced - $399 PS3 coming in October

[rocketpig]

SlorgNet said:

1. A single year loss doesn't matter in the console industry, which is driven by long-term sustainability. Sony booked one year of losses, but has earned high profits in the game biz in other years - by contrast, Microsoft has had consistent losses since 2000 (-$6.5 billion and counting) and still isn't turning a profit. 

2. Sony's overall margins and earnings are up - way, way up. They sold a few underperforming divisions, but are doing extremely well in TVs, screens and audiovisual tech. The PSP is becoming a huge cash cow, and the PS2 continues to sell well. Sony's vast studio network is producing some stellar games.

3. Sony is not losing money on the PS3. Here's why: electronic components drop in price 30% a year. The Bluray drive cost $120 in Nov 2006, today it's not more than $20. The EE/GS chips will be gone, that's a savings of $27. Total manufacturing cost of a PS3 this November: maybe $450 or so. What this means is that Sony can reduce the price to $499/499EUR for high end 80GB model, and $399/399EUR for a 40GB model. At current exchange rates, 399EUR = $559US. Profits in Europe offset losses in the US (total sales are about the same in each region) for the low-end models, and Sony turns a profit on both high-end models. By November 2008, further cost reduction will drop the manufacturing cost to around $315, making a $299/299EUR model possible.

If the price cut is for real, and all the evidence from retailers suggests that, yes, it's going to happen, things could get real ugly for Microsoft real quickly.

1. Yes, Sony booked one year of losses. Big losses that will only grow through the rest of the fiscal.

2. The PSP is becoming a cash cow? Any proof of this? I'm sure that it is doing well with its current sales but from all accounts, Sony lost a bundle on the handheld for quite some time.

3. Yes, electronics drop in price quickly. Any links to that $20 number for the BD drive? If that's true, why are standalone players still residing in the ~$450 range? And by your accounts, the 360 probably costs MS around $200 to produce now. It seems as if they look to be the ones who could actually start slashing prices at any time by your estimates. They already took the loss for the RRoD, 2007 is a new year with new budgets. People also completely disregard revenue streams such as XBL, which has to be pretty significant for MS (assume 3m Gold subscribers = $150m/year).

I also love how so many fanboys completely ignore the overhead and marketing costs involved with these companies; they're EXTREMELY large. You can't just assume that the straight manufacturing costs lowering means that the company can reduce the price; they have to recoup R&D, various overheads (hosting, labor, CSRs, etc etc), and massive marketing budgets.

In short, if you think that somehow Sony is delivering a deathblow to MS and that they are somehow better off financially than the Redmond giant, you're a friggin' idiot. This is a desperation move by Sony and nothing more. Last generation Sony dictated price structure to Nintendo and MS; this generation, MS and Nintendo are returning the favor and Sony is doing everything they can to keep up.