Only $8? For $499, paying by credit card = approx. 2.5% in credit card fees = 12.48 = retailer lost almost $5 on this transaction.

ils411,

Sony has announced that their production costs of the PS3 are now less than the sales price. Unfortunately, too many believe that means they are making profits on the PS3 hardware, which after adding in the non-production costs (fixed overhead, costs of getting the unit to the retailer), they are not making a profit on the PS3 hardware.

In a similar manner, their announcement of $3.3B in losses for the PS3 1. could be speaking of production cost losses, i.e., average cost life to date of a PS3 is $800, average sales price to the retailer is $500, net loss of $300 per unit, times the 11M units at the time of the announcement would be $3.3B.

But bumidan could still be correct if the addition non-production cost were added in, to get to the total $5.5B overall loss.

"i would assume that you over estimated ps3 loses and at the same time under estimated the gaming devisions profits."

2. That would be impossible for bumidan to be doing both of those. He knows based on Sony financial reports the operating income of the game division overall for the last 4 years. The operating income = the gaming divisions profits (of PSP, PS2, PS3 software, misc.) plus the PS3 hardware losses. If the losses of the PS3 are not as much as bumidan's numbers, then his estimate of the gaming division HAS to be OVER-estimated.

bumidan said:
REPOSTING. SO ITS CLEARER. I DON'T WHY IT LOOKED LIKE THAT.

@ ils411You are correct. All numbers, without actual confirmation by Sony, is by definition assumptions and guesswork.

Let me tell you a bit of the methodology I used, so maybe you can understand it a little better from my point of view.

The $10(*) and $2(*) for PS1 and PS2 were used for the following reasons:

1. I assumed PS1 was making money since it was an old system (last year in fact)

i agree, the ps1 would most probably be making profits

2. I assumed PS2 was making about the same since it was near the later part of its lifecycle

agreed, which is probably why there are rumors of another iteration of the ps2

3. With a bit of trial and error, I used $10 and $2. For the PS2, a retail price of $129.99 to $149.99 with the past 2 - 3 years led me to guesstimate that $130 retail price less about $20 retail & distribution margins = $110. $10 represents approx. 9% to 10% margins on an electronic product - which is about what Sony margins are for their products.

here is where we disagree. i am more inclined to believe that sony would have a larger margin. this is electronics, as a rule, electronic products usally have higher margins as compared to say consumer goods. well, at least thats what i've seen base on me snooping around our database (fssshhh...dont tell anyone) as i currently work in retail.

4. Figuring out the PS2, then I just copied it for the PS1.5. Remember I was using NET profit, not gross margins for all Sony game products.

As per previous posts, the trial and error worked a little bit like this:

Using Sony's published SW, HW and profit figures as constants, I had to use somewhat consistent numbers for all 4 fiscal years.

I started with the PS2 - since it is constant in all 4 years that I analyzed. The major assumption is that the NET profit for both hardware and software will be relatively stable.

That is, it doesn't make too much sense for the profit to be $10 for 1 year and $20 for the next year for hardware (also for software).

What made me choose $2(*) for PS2 hardware? First of all, PS2 sold a lot of software in those 4 years. If I used $5(*) net profit - the numbers did not make sense.

Why did it not make sense? Well for the FY end Mar 2005 - the PSP hardware would have lost about $1.2(*)Billion dollars or $417(*) per console. Now most Sony fans will tell you that PSP lost money when it launched, but that high number did not make any sense at all. (I don't know if you agree or disagree with this point).

we're talking about sony, they never make sense. orrr....maybe their cheating? they could "declare the R&D expenses" they incur every fy, then when they launch the product, they'd again incorporate the "R&D expenses" into the products manufacturing costs since they have to come up with a price which should be enough to earn back all expenses and then earn profit. why would they do this? simple, tax. larger expenses would mean mean lower taxes. though i have no idea if they can actually do this.

Also, as per in a previous post, using $5 for PS2 software made PS3 hardware losses total more $7(*) Billion.

You can also see that by using $5 net profit for PS2 software, it would also make me have to use $5 net profit for PS3, PS1 and PSP software. Because I would not have a reason to believe that only PS2 software makes $5 while other software makes $2 per unit.

Now using a $5 profit for ALL software, the PS3 hardware losses would have totalled $9 to $11 Billion Dollars!

That thread was posted by YOURS TRULY and it was SHUT DOWN by a mod. (haha)

So I hope that explains some of the reasoning and methodology of the analysis. So you can see why I used my original assumptions.

Do you have any other questions? Please let me know. Thanks.

and the key word here is "coud be". they "could also be" speaking of  total losses including R&D + manufacturing/production costs + fixed overhead cost + what ever costs they could have incurred with the ps3.

1. keep in mind that at the time of the announcement of this $3.3B lose, sony had already gone through multiple skus each with varying production costs. we have the 20gig, 40gig, 60gig, and 80gig. i'm guessing and an emphasis on guessing that the 40gig is the sku which is losing the least amount of money for sony, followed by the 80gig, 20gig and 60gig. which is probably why sony discontinued the 20gig and 60gig. of the 11m units, how many are actually 80gig models? 60gig? 20gig? 40gig? we cannat assume an average net loss of $300 per ps3 as there are multiple skus.

I'm not sure if there ever was an announcement that PS3 directly lost $3.3B.  It may be that the PS3 caused the game division to lose 3.3B.  There is a difference.

As per the multiple SKUs, again, the net loss figure is more of an average.  If I took into account the multiple SKUs, given the same other set of assumptions for the PS2 and PSP, then the TOTAL LOSS NUMBER would still be the SAME, though the individual loss per SKU may be different.

to further explain my point, uppon launch of the 40gig sku (oct 07 iirc), the ps3 install base was at around 4.9m (launch - sept 07), then sales took a giant step forward from an average of 60k-70k/week to 150k/week. so, of the 11m install base, the 1st 4.9m is comprised of 20gig, 60gig and 80gig models. then the remaining 6m is comprised of 20gig, 60gig, 40gig and 80gig models.  now, judging from the sales boost that the ps3 experienced, plus the fact that the 20gig and 60gig and the 80gig (to some extent, japan for example) were discontinued, we can assume that majority of the 6m are 40gig skus. this would significantly bring down average net loss per unit of ps3 sold.

2. it goes hand in hand, if bumidan over estimated ps3 loses, then obviously, he would have also have underestimated the ps3/psp profits.

edit: by the way, me questioning your methodologies does not, in no way mean that i am belittling your analysis. if anything, i give you props for coming up with a very detailed analysis.