doesn't matter if the prices dropped to manufacture it, a price drop of 100$ is gonna take 100$ away from profit regardless. That's a billion dollars of potential profit, or in this case taking less of a loss.

Come to think about it, the number does make a bit of sense. Since they estimated 11 million PS3s shipped for the year, $100 x 11,000,000 = $1.1 billion. That's nearly 25% of Sony's cash reserve.

i don't agree with people saying that they need the price drop to get more profitable. Sony will never make up that 1 billion dollars with the PS3, and they certainly won't make up the 2 billion they lost over the last fiscal year. They're just gonna have to wait until next year when a price drop is less costly.

Their main goal is not to make the PS3 profitable, it is to win the HD-DVD war with Blu-ray

Their main goal is to make a profit period. I have yet to see conclusive proof that the potential profit from blu-ray is greater than the profit from video games. Key word being PROFIT.

Sony has put itself in quite a pickle here.  If they don't radically change thier price levels they will have to stop production soon.  That's not exactly cheap and would leave them unable to deal with any unexpected surge in demand later.  We can look at how much they lose on each sale but that's not how most businesses operate.  At least not when it comes to annual sales and profits, longer term is a little different since production can be sold next year and such.  They are paying to make a set number of PS3's whether anyone buys them or not.  Apparently they plan to make around 10 million PS3's this year which would cost between $6.5 and $7.5 billion.  Assuming software sales of 5 games per console, 3 million consoles sold before the year, and $15 profit for each game (I'm probably off on that but I doubt it will change things much) then $225 million in software profit will already happen.  That is the fundamental start point for any calculation of Sony's losses.

The next question is what would happen to the PS3's sales with price cuts.  The PS3 is riding at the $600 saturation point with its 200k a month in sales.  The 360 is riding at the $400 saturation point in NA and near it in EU with ~350k a month in sales.  Adjust for the WW $400 point and compare to the $600 point and Sony could at best expect to pick up 100k per non-holiday month in hardware sales at $500. Let's say Sony goes crazy and cuts $200, I would guess the PS3 at $400 could sell about 500k per non-holiday month. 

Given expected sales a general profit picture can be constructed (I know revenue is a little high since Sony doesn't sell the PS3 to stores for full price, but it'll work as an example).  At $600 they are trending towards about 3-4 million in sales this year.  Assuming a similar software sales environment that would equate to $2.6 billion in revenue and losses of $3.9-4.9 billion (or over $1,250 per console sold).  With a $100 price cut the PS3 could sell 5-6 million.  That would lead to revenue of about $3.4 billion and losses of $3.1-$4.1 billion ($650 per sold console).  Lastly, I do think a cut to $400 would allow Sony to sell 9-10 million PS3's.  In that case revenue would jump to about $4.8 billion with losses of $1.7-2.7 billion ($230 per console sold).  With the $600 and $500 price Sony could lower production 5 million and save around $2.5-3 billion (I'm not sure what the exact cost of that would be).  Although this would be at the price of later profits as the production line would have to be restarted at some point, especially with a $500 price cut where production would have to be quickly restarted/ramped up.

A few things stand out, most notably all of those losses are enormous.  Without a price cut it is simply impossible for Sony to maintain a 10 million annual production rate for the PS3.  Without a serious price cut it will probably be impossible to maintain 10 million a year next year.  While shuttering production to equalize supply with low demand while keeping the price at $600 may be the best option for the bottom line this year, odds are good that doing so would cause lasting damage to the PS3.  The Wii will likely end this year with an install base of around 22 million while the 360 should have at least 14 million.  If the PS3 is sitting at less than 8 million it will be in serious trouble game wise and would probably never recover.  Then again would cutting $100 and ending at 10 million make that much a difference?  Profit-wise a $100 price cut with a temporary production lull would be best over the next 2 years.  However, the only thing that could really save the PS3 long term is a $200 price cut but I doubt Sony could absorb the huge permanent losses that would entail. Sony would basically be trying to save its install base at the expense of ever being profitable.  I should point out that by saying one thing is better than another here we are still talking billions in losses, just that $1.5 billion is better than $2.2 billion for example. 

All I can say to Sony is greet Mr. "We can sell a console for $600" Rock to your right and Mr. "We can lose $200 per console" Hard Place to your left.

Sony has already decreased production, supposedly:

http://biz.gamedaily.com/industry/feature/?id=16288

I haven't seen a thread discussing the consequences of these news, probably because the information about the production decrease is basically nonexistent. All we know is that they may have decreased production. I hope more informative news surface on this matter soon.

Here come the FUD, here come the FUD. Give me a break. Saying that it is impossible for Sony to succeed is like someone saying "I've never been pulled over before". The cop will just say "There is a first time for everything!" The article that NJ5 refers to has been refuted. And there are even rumors (yes I know ONLY rumors) that the monster that is RE5 might be exclusive to the PS3. I really like the fact that this site keeps a tally of the sales of the consoles but I really wish that there were less Nintendogs here. ;) Kidding.

It actually doesn't matter how much they charge at this point. If PS3 isn't selling, even to retailers, and is just building up as inventory in warehouses, then Sony isn't out of pocket by the manufacturing cost - wholesalers price as you'd expect. They'd actually be out by the full manufacturing cost. I.E. If they don't move their inventory they lose $840 per unit instead of $240 !!!! I mean, even assuming the most radical cost reduction to say $500 per unit. With say half a million units sitting unsold to retailers they're still out of pocket $250 million

 The diode did drop in price but the rest of the drive is still expensive.  A lot of people seem to think the diode was $100 when it was closer to $30.  The EE is saving something like $20 and the 65 nm chips do save money as well but again not as much as some people think because with the die shrink there will also be a decrease in yields (will improve over time but it can take a while) which off sets some of the cost savings.

 Total I expect that Sony is only saving about $75 to $100 vs the original production cost.  The US loses used to be around $150 - $200 per a console but then they still have the EE so I suspect its still around $100 each.  The loses in Japan must be huge because the system had a price drop before release and is much cheaper then in the rest of the world (so $200).

One VERY easy way to get a price drop would be to make Blu-ray movie playback optional.  Not removing the drive but making it so that you have to purchase a seperate license to play movies.  Everything I have seen says the licenses are around $50 per a player and while some of this would go back to Sony because they helped develop the standard there is a lot more in it then just them.  9 companies produced the disk, player, and other standards for Blu-ray and there is a huge number of companies with codecs, encryption and other pieces as well.

The many fees with playback of DVD's was why you had to purchase the remote for the xbox to play movies.  It was a huge cost savings over the life of the console.