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Forums - Gaming Discussion - Console Profitability Since November 2006 - Who's Making What?

Grampy on 28 May 2008
Console Profitability Over the Last 19 MonthsAlthough getting really accurate information is difficult because the manufacturers don’t like to give it out, using the best information I have been able to find, here are the estimated per unit profit of each console as of Nov. 2006 and today. Average is taken between models without accurately factoring in model mix. Profit is estimated as 40% net income. Corrections or better information welcome; I’m no great expert.For those that like the short version, here is what I came up with
ConsoleProfit  11/2006Profit  6/2008
Wii$40$60
PS 3(- $275.00)$ 0
Xbox 360$28*$50

* Overall profit wiped out by RRD costs

Wii

Toyo Economics TK news-paper has published teardown analysis of the Nintendo Wii game console, according to which each unit of the game machine costs Nintendo as much as $158.3. The news-paper states that ATI-developed code-named Hollywood graphics processor costs $29.6, IBM’s custom Broadway microprocessor takes $13 to be delivered to Nintendo, $31 is paid for Matsushita-made optical disc drive, memory array costs $7.80 and power supply unit stands at $11.30. Nintendo reportedly pays Foxconn Electronics $19.50 for Wii assembly, reports WiiInside web-site.Estimating than Nintendo has used scale and costs reductions at about the same rate as the competition their profits should have increased (conservatively)

$40.00 estimated profit 11/2006

$60 estimated profit now

Taking an average of $50.00 x  26.37 Million Consoles Sold  Total $ 1.32 Billion

PLAYSTATION 3

Table 1 below presents iSuppli’s estimate of major component and subsystem cost drivers for the PlayStation 3.

Sony instituted aggressive cost reductionAlready such changes have cut the cost per machine to around US$400 now, from above $800 just before it went on sale in November, 2006 … We think the biggest factor here is that simplification has become possible through a reduction in the parts count, leading to a reduction in costs.  

The Reductions Came at a CostThe cost savings have come from a number of different areas, including the removal of the chip allowing for backwards compatibility, the removal of a memory card reader, two USB ports, and general design tweaks on the machine.$400 cost / $399 retail means profits are meager indeed.
Estimated Profits at Launch  - $275.00
Estimated Profit Now $ 0 

Xbox 360

As Nov. 2006 the Xbox cost about $75 less to manufacturer than retail Profit would have been about 40% ($28.00)
except Microsoft took a huge hit on warranty repairs because of RRD

Table 2 below presents a comparison of costs between the PlayStation 3 models and the Xbox 360.

Retail Price (BestBuy)  Xbox $349.00                $449 Elite           $279.00 Arcade

Microsoft has also managed to reduce costs but has given some of it back in price cuts

Estimated Profit Nov. 206                      $28

Estimated  Average Profit    Now           $50.00

 

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colonelstubbs on 28 May 2008

Uh oh....this just confirms it....PS3 not making money....here comes the abuse



I hope my 360 doesn't RRoD
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Grampy on 28 May 2008

They may actually be making a few dollars but probably not enough to generate a measurable profit. Both they and Microsoft are probably spending relativley more in promotion and advertising because of the tight competition between them, and to try to close the gap with Wii



rocketpig on 28 May 2008

Interesting. Those numbers seem pretty much in line, though I initially believed the Wii would be more profitable than that. It could have something to do with that reverse-spin drive they use in the machine... $31 is a lot for an optical drive nowadays.




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Grampy on 28 May 2008
rocketpig said:
Interesting. Those numbers seem pretty much in line, though I initially believed the Wii would be more profitable than that. It could have something to do with that reverse-spin drive they use in the machine... $31 is a lot for an optical drive nowadays.

Part of the cost may be the ability to handle GC disk in the vertical position without a tray and don't forget the pretty blue light which I think comes with the drive. Also, although I don't know it for a fact, that drive may be thinner than a cheaper one to meet Iwata's demand for a super thin console.



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DMeisterJ on 28 May 2008

Yeah, Wii's optical drive is super expensive.

And PS3's is crazy expensive.



waron on 28 May 2008

i'm pretty amazed that microsoft can make relatively huge profit. i thought that they will be earning about 20$.



Grampy on 28 May 2008

If you factor in the ongoing RRD repair nightmare they probably aren't getting to keep much but since the newer models don't seem to have the problem I didn't factor it in. I also used the gross/net profit figure of 40% because I had accurate information about that for the Wii.

Presumably, Microsoft's shipping is more (larger console), they still have higher repair rates and because they are locked in a tight competition with Sony, they probably are spending more on promotion and advertising.

However to be as fair as possible I used the same ratio for everyone and kept the field level. In truth, MS & Sony lie in bed DREAMING about the kind of profits Nintendo accepts as just how you do business.



TheBigFatJ on 28 May 2008

If Sony isn't losing any money on each PS3 sold, then how did it lose so much money last year when the PS2 and PSP were almost certainly generating significant profits.



nextgreatchamp on 28 May 2008

so i make more money at work than the ps3 does.



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