He said the end of next year ;)

I think it'll do 14m by then.

I think he means the end of 2013.  Not particularly ambitious by any stretch.

Edit: Ninja'd x2... Ugh.

Oh, my bad.  I read it as this year because I was thinking about what Sony was saying about "end of the fiscal year" that they wanted to sell 10m Vita units.  End of next year sounds much more possible. LOL

Your estimate of losses by cutting price early could be quite excessive. Losses by doing it depend on two things: how many more units will be sold with the lower price compared to cutting later, at the originally planned time, and this provides the maximum possible  loss (or missed profit, if the system was already profitable and stays so, SW and peripherals included, after the cut too), but it's not so simple, early cut before Xmas could mean increased SW sales and also persuading publishers to release big titles earlier, so it could increase lifetime SW sales, and you should subtract them from the losses.
So for example, if the cut was originally planned for Q1 2013 and it happens instead during September or Q4 2012, the loss will be AT MOST $50*number of units sold between actual and originally planned cut time. For this maximum possible loss to be $500M to $1B those sales should be between  10M and 20M, and this not counting additional profits from SW (and cutting HW price BEFORE Xmas instead of AFTER there would surely be increased SW sales).
Oh, I almost forgot it, another factor decreasing losses compared to their theoric maximum, is that increased production accelerates the economies of scale and cost reduction of components.
This said, cutting too earlier, meant as earlier than really necessary is bad, botching the cut with bad advertising and missing synergies with big and profitable SW releases is bad too, but even if things aren't going well and you can't choose a good, but just a lesser evil, the key is cutting "at the right moment".
About PS4 launch, its best possible date depends, amongst many factors, also on how Wii U will be received and how much PS3 HW and SW sales will be affected by it.

We can argue over the cost of a price cut, but being that we're both dealing with assumptions it is not really meaningful ...

On the bolded. Sony doesn't have the luxury to wait and see what happens with the Wii U to plan the release of the PS4; they will need to have third party publishers on board (at least) 2 years ahead of the release of the system to ensure that they can allocate resources for games to be developed in time for the system's launch. If Sony was launching in 2013 they would have made that decision last year, and if they're releasing in 2014 they (probably) would have made that decision earlier this year. If they waited until the Wii U launched and they could evaluate its impact on the market they would (probably) be unable to release a console before 2016.

Good observations.

About 1: Sony actually can have a very good estimate only of the maximum losses, because it knows the originally planned date, and it can also plan the maximum number of units it will produce for Xmas, while the mitigating factors can't be predicted precisely.
But Sony could also not modify the definitive cut date at all, and until then do just time-limited discounts and other special offers, and these could be acceptably accounted for as marketing expenses, more justifiable for shareholders.

About 2: you're right, by now all must already be decided, so the only option for Sony is to do its best to keep PS3 healthy as long as possible until late Q3 or Q4 2014. The good side of this is that launching last it will be able to make a more powerful console for the same launch price, but launching so late 100% BC will be mandatory to give PS4 any possible help. Launching last will also allow Sony to equip PS4 with the largest RAM, so ports of multiplats from the other platforms won't meet any major obstacle, but the opposite could become more difficult for the largest games. The last launched, if the most powerful, could also enjoy more longevity. And yes, also in this case, the size of both possible handicaps and benefits is totally unpredictable, but as you wrote, Sony has no choice except trying to do its best in this situation.

Alby makes a lot of sense when determing when to cut price. There are several factors and Sony has a prepared plan for the Vitas price cuts, to stray from that plan could mess up their business a little bit, but if the opportunity arises while the need is rather apparent like it is now they might go for it. One possibility I suggested to others before is a price drop and bundle for the holiday months and then normal pricing until their planned time to cut the price comes next year because it doesn't make any sense for them to have planned to drop the price in less than a year from launch. A temporary price cut might boost sales even more so than a permanent one, maybe convincing consumers to take the opportunity since waiting would have them seeing the price up again.

In regards to the Wii U launch, Sony of course is already deep in the development process of the PS4 and has a somewhat set window. That window is flexible and witnessing the Wii U effect will help them determine when will be the best time for them to home in on a launch date, be it in their early window or their late window.

From earlier,

Happy Squirriel said:

The main complaint I hear about the Vita is its cost, just like it was for the 3DS at first, so once they remove this barrier its sales should surge.

I thought the main complaint about the 3DS was its lack of games or even its small graphical jump from the DS? I didn't even know price was an issue until it was cut. Price was obviously important in hind sight since they were selling it for a large profit margin and it would have been the same price as the Vita (except for $20 memory cards). 

Hasn't there actually been a development kit shown of the 720, which devs have supposedly had for a while now? I don't recall anything of this nature happening for the PS4.

And as for the VIta, I'd say another factor in its favour is that highly priced products can create a perception of them as a premium product, (something Sony products already tend to be seen as) which means that when it does drop price it could be seen as "wow, we get a premium product for just $200!" and sales explode. The PS3, for example, benefitted from this. (And still does)

Bolded part... You can't be serious, can you?   I doubt people think the graphical jump is small between the DS and the 3DS.   The only people I see saying that are people who don't own one of the two or are sony/microsoft fanboys trying to downplay the 3DS.

Sony is just fine with R&D. The problem is that, they aren't willing to be the first.