Yes and those cost have been relatively applied to support at cost or slight profit on hardware. There are a variety of alternatives to ending the product. Ending the Vita has to be among the worst possibilties. It is not a safe backing out but a complete failure and damaging to their business.

Do you have numbers to back that up? Because operating costs are going to outstrip profits if a system sells below a certain threshold. It's not like Sony goes into a store and buys each Vita for 240$ USD and sells them for 250$ USD, they're responsible for paying the salaries and bills of everything and everyone involved in the production along with the expense of all other operating costs.

Numbers are buried somewhere, but they are working off of estimates and comparisons. Namely Wii and 3DS.

Starting at the $160 teardown mark (same as Wii), from there add estimates for assembly cost, shipping, along with wholesale and retail cuts. The retail cut is small judging by every other system (the Wii only had a $4 cut) and wholesale cuts typically match retail. The Vita is smaller than a home console and benefits from cheaper shipping costs. It is known that the Wii wasn't being sold for a loss, launching at $250. The Vita has a $250 SKU and a $300 SKU, with the cost of a 3G chip being around $3 or less, there is far greater potential to be acheiving profits.

The 3DS was originally sold at a profit at $250 and later at a loss for $170. The manufacturing cost of the device is around $100. So at least for the 3DS the $70 cushion wasn't enough for a profit to be generated. The Vita has a $90 to $140 cushion. So if after manufacturing costs are enough to make Vita sell at a loss than the 3DS is selling for at least a $20 loss after the price cut. If so the 3DS was originally landing Nintendo a $60 profit ($250-$100-$90). Now if the 3G vita was even being sold at a loss than the 3DS was taking a $70 loss after price cut while at $250 was making Nintendo only $10 ($250-$100-$140). 

So, though it is a different product by a different company and compared to an older product, in order for Vita to be taking a loss, the 3DS would have to barely be making any profit at $250 and taking a massive loss at $170 (a loss Nintendo has already eliminated in less than a year). Along with some massive unseen price discrepancy for post manufacturing from the Vita to the Wii.

There is no evidence to suggest Vita is being sold at a loss to contradict this analysis. Some people will try to quote an interview with Kaz talking about profitability on the Vita in three years. The article they site is wrongly titled to say the Vita is being sold at a loss, but the interview refers to the Vita providing return on investment in 3 years. So don't listen to those people because it is a lie. So aside from that thin skinned attempt, no one has provided any evidence towards selling at a loss.

Now there is a chance that the numbers fall towards the wifi Vita selling at a loss and the 3G selling at a profit, quite possible. Without knowning if that is true or at what level of loss or profit each system creates, it is too hard to determine total profitability or loss for the hardware and the best route would be to advocate break even for the system.

Despite what everyone already said about it, i really have to point out the KH3D is not the worst selling KH. I sugest you search the website for it, but the most glaring example would be KH:Re:coded. Also, lets point out this "terrible" 3rd party seller is hitting the 1m mark in the coming weeks.

Many would like to have such "bad" sales. Actually this terribly selling game outsold the highest Vita seller by more than 130k (uncharted). Wich in turn is more than what AC:Liberation has sold on the Vita on week one according to reports. Such terrible numbers...

Take install base into account for the 3DS. 3rd party sales are horrible. Most of these games could achieve similar if not better if released on the Vita.

Nintendo consoles are not 3rd party friendly for the most part. Sony's consoles are.

Of course Vita itself has a really tiny install base at the moment, so obviously software sales aren't good either.

Yeah, terrible numbers. You keep saying that Vita is selling bad, we know.
Vita is about to have its first holiday. That should provide it huge boost to the current install base and pave the way for software to actually sell.

Right now the Vita is purely being supported by the hardcore gamer. It needs some casuals. That's where Santa Claus comes in.

I heard that smart as is a title to look out for.

Yes, but you realise that casuals dont buy many games and the attack rates will drop to 3DS levels right?

Heres hope that the Vita does well, i would love for that to happen since i enjoy my PSP. Sadly, it just isnt in the cards. it seems. Most portable games come from Japan. With the Japanese market this small, it is really just hopeful thinking keeping you optimistic. Next year the system dies, i dont see how it can be saved. This was the year for the Vita and Sony squandered it.
I dont share your view that the Vita will somehow sell alot more this christmas. With the WiiU out for a similar price, why would anyone go for a Vita? Not to mention 360/PS3 with much larger software offerings or the much cheaper 3DSXL with now a decent library of titles out for it.

Is this trend somehow gonna turn 180 with the release of CoD:D and christmas? I have my doubts. We shall see.

Everything gets a boost in the holidays. Even the dying(dead?) PSP and DS will.

Vita will most definitely get a huge boost as well. It's impossible for it to be selling less than 100k once the holildays really kick in.

Will the Vita turn a 180 and start outselling the 3DS? Of course not. But it will go from "dead" to "rising star".

Vita won't die. Plain and simple. Sony won't let it.

But there's still such a thing as hitting or missing sales projections. That's one thing that can't be fudged.

Sure, a significant chunk of annual sales occur in the final six weeks of the calendar year, but that's accounted for in the overall annual projections.

With the current limited back catalog and a few must buy titles coming up for the holidays, none of which are necessarily hardware sellers, I'm not predicting some sort of miraculous "beats estimates" sales figures.

Odds are, sales will pick up once the PSV gets that price drop a lot of potential buyers were expecting to happen this year. Say $199 for the WiFi and $249 for the 3G, assuming they even keep that SKU around. By the time that adjustment happens, the back catalog will look a lot more inviting to potential new customers and current holdouts waiting for the right time to buy. 

But going back to the OP, if sales in 2013 ARE less than those of 2012, even with the price drop and the improved catalog of games, then SCE will essentially be keeping the PSV on life support and they would probably be better off licensing out PSVita game compatibility with smartphones if they don't produce their own PSV compatible smartphone. 

At that point, it would be about keeping developers on board for the platform and selling software rather than selling game hardware.