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Last year when they had the 60gb unit they said it be equal cost in March to make. Which would of been about $600 USD when they said it. Take out the PS2 stuff lower the GB by 20 and take out 2 USB ports and you have the 40gb unit costing about $500. this would be my guess.

Once you add in the fact that they want it to be profitable in 6-12 months, the $500 cost of the 40gb unit right now sounds about right. I'm also not sure how the USD has done with other currencies but its stayed about = with the Canadian $ over this time.