If you allow running on the external HDD then you already go there on limitating factor.

Most certainly cost at launch.
The Xbox One being a prime example... It could have had the same hardware as the Playstation 4... But Microsoft drew a line in the sand and decided to go with cheaper components in order to push other aspects. (Kinect)

You have a finite budget. - Later on the console manufacturers can make revisions in order to reduce costs and lower the price, which is the natural progression.

Forward sales projections does play a part in some decisions... But estimated generation-long component costs doesn't. Why?
Because they may not use the same component all generation long, quick look at the base Xbox One and Xbox One S show very different components even if they achieve the same effect.

Some components are more expensive on launch and reduce in price, but allot of the price cutting happens because there are revisions made to the machines themselves, you get new motherboard revisions with changes to capacitor type and layout, smaller, cheaper, more efficient power supplies, new CPU's/GPU's built on a new manufacturing process, even changes in drives and chipsets.

Sometimes these changes are made to bolster reliability.

Newer Playstation 4's have less GDDR5 chips than the launch consoles for example... Sony didn't save money on GDDR5 because they stuck with the exact same Ram and hoped they would drop in price (There was a point where GDDR5 increased in price massively infact), they opted for higher density, but fewer chips in a revision.

To be fair, DDR3 was rising in price at the time, where-as GDDR5 was still relatively new and also high priced, this is where forward projections come in, thanks to GPU's adopting GDDR5 it's actually not a premium commodity anymore.

I also don't think Sony made a "bet". - We knew higher density chips were coming for years, memory manufacturers have roadmaps, Sony being a direct customer would have had more intimate knowledge on that front than even I.

It was "cheap" in that Sony opted for a unified memory subsystem... Remember the PC has large split memory pools, having 8GB of System Ram and 8GB of GDDR5 like on the PC would have been prohibitively expensive, in short... Impossible for the consoles.

8GB of GDDR5 on any device/component was a relatively new concept back then, but only because nothing needed it at the time.
I mean, you PC had GPU's with 6GB-12GB of GDDR5 before the Playstation 4 launched, but it was a pretty pointless feature to have for gaming, that would have been in conjunction with 16-32GB of System memory on a PC that was equipped to handle such a GPU.

However... It could be argued that the budget that the Playstation 4 spent on Ram and GPU capability came at the expense of CPU, which plays into the "budget" that console manufacturers need to stick to in order to hit price points for a market that is ultimately cost-sensitive.

Microsoft stupidly spent some of it's budget on ESRAM which took up a big % of die-space and came at the expense of the GPU and CPU.

The price on launch day important. No longer will Sony or Microsoft make a gamble like Sony did with the Playstation 3... And have a stupidly expensive console on launch.
The 8th gen reinforces that fact as they employed more conservative, mid-range hardware on release. (Even the Xbox One X is Mid-range by modern PC comparisons.)

Price in 6-10 years is also a factor, but that is going to happen either-way as revisions are a normal progression of any electronics device which spends a long time on the market, not just to cut costs... But also to bolster reliability.

I think for a console that lacks any optical disk... And is meant for a low price-point... A mechanical drive is probably the way to go.
Mostly because Mechanical drives will still have the advantage in terms of capacity/price over the long haul, especially as next-gen mechanical disk technologies start to ramp up.

For higher end devices like the Xbox One X, we might see a shift to NAND.

Not really. Sony and Microsoft don't have to worry about it, it's all handled by the drive manufacturers at the HDD level.
It's like buying any normal mechanical drive... It's just got extra NAND built-in with firmware built to cache data.

Years ago I had a 32GB SSD used as a cache drive in conjunction with a Samsung Spinpoint F3 7200rpm mechanical disk in the Core 2 Rig... And trust me you knew when the SSD cache drive wasn't functioning.

I was also an early adopter of SSD's as well... I jumped onboard the SSD train when the OCZ Vertex 2 64GB drives was new and fresh on the market back in circa 2011~... But I also run an array of mechanical disks because NAND just doesn't offer the capacities of spinning rust at the right price just yet.

Sorry Pema, but only short-sighted company would look exclusively at launch. Price at launch is all good and dandy, but if one technology that gives then better price at launch but 2 years later is more expensive than another tech by their analysis they would go with the second one if it's something you can't change (like the memory where GDDR5 ended up being a better cost curve than staying at DDR3).

And if you say they are always going to pick the cheapest available  at launch  why did they got 8GB of GDDR5 and 500GB of HDD for PS4 instead of 4GB of DDR3 and 250GB of HDD?

Also better yet you ended up agreeing that if they can see a component or design that long run will be cheaper even if short run more expensive they will choose the second one.

Didn't say the will be able to play their games from the external HDD. Said the external HDD will just allow them back up their games. when they wanna play a game from the external HDD it will work just like playing a game from the disc. It will temporally install the game to internal storage.

At the time even 8GB of DDR3 would have been cheaper. Or 4GB DDR3 and 4GB GDDR5 would also have been cheaper than going with 8GB GDDR5.

I am with you on this. Console OEMs have to be more forward thinking when picking parts.

I am not saying consoles go for the absolute bottom-of-the-barrel hardware.
But they do opt for cost-sensitive components.

And when it comes to consoles, Graphics is what sells games... So Graphics will get the priority on the hardware budget (Usually $400-$500 USD) and that means things like the CPU, Storage etc' get treated like second class citizens and the GPU and Memory will tend to get priority.

8GB of GDDR5 was relatively inexpensive when the Playstation 4 launched... And that was at a time when DDR3 was increasing in price, Sony made a cost-analysis and made the correct decision.
Although, I personally wished they threw more Ram at the problem, but Tomatoes, Potatoes.

Looking at the sales from the PS4 and expecting another big year in 2019, it makes no sense to release the PS5 next year. Even 2020 PS4 sales should be big. Ideally 2021 launch but due to Xbox I'm afraid Sony will go with 2020 at the latest.

Understood. Still they could if they so much choose at the time of launch if SSD is still expensive and they can't just put a low SDD because of marketing they could very well put a very small 128GB soldered on the motherboard as the main memory and a 1TB HDD for the internal backup. Then later when it is better priced they could just move to 512GB SSD only.

There is more than one way to foot the bill and also meet marketing needs. Because we all now that if for some reason PS5 offers low density SSD only with XbNext offering high density HDD PR will find a way to say Sony little SDD is bad for gaming.

Yes, they will look for the cheaper option that meets the need of performance and PR, but not only launch, full life. They need to do the profit curve for the full life.

OK we have an agreement on the first part. But it seemed you were putting it all on getting the cheapest period.

Also agree on the second part (even more if they can change the other stuff reducing cost and gaining performance, if SSD was already cheaper at time of PS4Pro and X1X even though games would still meet the lowest denominator of X1 and PS4 they would put it and call better performance on the premium console).

Launch is different than design. At the time they decided the architeture and components the memory was still more expensive (and you can see the reactions on this forum on the relentless discussion on the memory decisions of both consoles). You can let it go and accept that sometimes the console makers will choose something that is more expensive at the moment of launch if they see that long run it will make they more money even if at first they need to eat up a little of the cost, Sony have made it with PS1, 2 and 3. Or will you say to me that BD drive was the most cost sensitive decision? Or Cell?

I still think a PS4 Premium in 2019 on 7nm, with PS5 in 2021 - 2022 on 7nm+ would have been the best move. PS5 in 2020 is landing in a period between the transition from HDD to SSD, and Rasterization to Ray Tracing. 

PS4 Premium would have given the the definitive 4K console, while PS5 could launch at a reasonable price, with all sorts of next gen bells and whistles.

I just hope the rushed launch of the PS5 and XB4 does not result in outdated tech. Microsoft and Sony need to bite the bullet, and deliver M.2 NVMe Storage and GPU's that can deliver Ray Tracing. If not, Next Gen is going to be a major disappointment, with far outdated tech at launch. 

As I have mentioned before, if Sony and MS half ass these consoles, Apple, Google, and Amazon will be ready to pounce. Google is already making their entrance into the gaming market clear, and they will not paint their ecosystem into a box. Sony and Microsoft have to be aware, or they will end up seeing their Home Entertainment Platforms go the same way as Handhelds.

I doubt any sensible person thinks the PS4 will launch in 2019. Announced maybe but not launched.

And yes, if MS was not set to launch in 2020 I believe sony wouldn't have minded holding off till 2021 but as long as there is even the slightest chance someone will launch in 2020 then both will have to.