I see a lot of people mentioning things about when Sony is able to lower production cost and offer the PS3 at $400, $300, and even $200 in some cases.

My question is, what kinds of things are we basing this lowered production cost on? I mean if they were losing money at $600 at launch, it seems a bit of a stretch to think they can get down to half or a third of that price within the next 2-3 years. 

Normally lowering production costs happens over time as the hardware becomes older and there is better stuff out there. But with the PS3 it has a fairly propriatary processor setup and that makes me think it is going to be more difficult. In general I think the price will most certainly drop to the levels people are saying, but I am not sure about the time frame and it seems most of the people who say this type of thing usually phrase it as though they are fairly uncertain as well. 

So I guess I am trying to get an idea of what the price cut path will look like. I am going to make a model, and please feel free to add input.  I am unsure how valid this type of model is but it should be interesting regardless. 

So I guess lets start by looking at the PS2 and see how its price has dropped...

(Source: Wikipedia)

    North America Price History

•  
  • US$299.99 (October 26, 2000, release date)
  • US$199.99 (May 14, 2002)
  • US$179.99 (May 13, 2003, "temporary" pricing)
  • US$179.99 (August 18, 2003, official pricing)
  • US$149.99 (May 11, 2004)
  • US$129.99 (April 20, 2006)

For the PS2 it took 19 months for a $100 price drop, then 1 year later they announced a "temporary" $20 price drop...3 months after the temporary price drop it was made a permanent price drop. Then a year after the $20 price drop they gave a $30 price drop. Then a little over a year later we got one last $20 price drop.  If we apply this same price drop scheme to the PS3 by dropping the price of the PS3 similar percentages of the original price it would look like this.... 

 Projected NA PS3 Price History Base on NA PS2 Price History

• US$599.99 (November 17, 2006, release date)
• US$399.99 (June 5, 2008)
• US$359.99 (June 4, 2009)
  
• US$299.99 (June 2, 2010)
• US$259.99 (July 11, 2011)

Now I am not trying to use this to say that this is the path the PS3 is going to take, I am just using it to get an idea of about how long it will take to get in the area of $400, $300, $200, etc... The PS2 was a very different machine when it came to sales numbers, but I do think that these price cuts give an idea of what kind of reduction in production costs are possible in a given timeframe.

It depends. One of the biggest cost contributor the the PS3 was the Bluray diode. Which cost upwards of $130 thanks to it's pathetic 10% initial yield. (And this has dropped by $100 according to Sony, if you choose to believe them)

Costs of the Cell processor is even more interesting. Modern processors still cost relatively little to manufacture (we're talking a few dollars) but take HUGE amounts of money in R&D as they get more and more complex. That's why volume will cut into CPU prices more than other components that are more material / process dependent. If a CPU takes a billion dollars to develop, it's a sunk cost regardless of how many sells.

I believe they can afford a cut to $400 in 2008, but it's really a game of give and take. Will the money you lose now be worth it in the future? Clearly the lower prices in Japan isn't helping, so they might not be so quick to drop prices despite sluggish sales.

Id say a big price cut, sub $300 will come when they make a Slim PS3. 

Maybe by xmas 09 or 2010

There are several factors that reduce the cost to manufacture ...

Component costs can be reduced as new technology becomes available; the 65nm process will reduce the size of the CPU and GPU to half their current size, which reduces the materials cost per chip and the number of defective chips.

Component costs can be reduced as rarity is reduced; the Blue Laser Diode was so expensive in part because it was a rare component. As more manufactures can produce it and as current manufacturers increase their yields the cost per unit comes down.

Licencing costs often are reduced after a product hits certain milestones; as an example, Sony might pay $25 per GPU for the first 10 Million units and $18 per GPU for the next 20 Million units.

And finally, a product like the PS3 will be constantly simplified through the integration of components (combine the USB and Flash reader controllers).

People mentioned that component costs fall more as the product becomes older. Technology is improving right now at an amazing speed but when we look at the PS3 we see absolute cutting edge technology.It will take a while for prices to come down low enough for Sony make a profit, let alone making another price drop ensuring them that profit.

I am pretty sure that Sony is the largest producer of the 405nm blue-violet laser diodes for blu-ray. So for them it shouldn't be an issue of how many are being produced by other groups just what it costs them to make them themselves.

edit: My biggest reason for this thread is that people seem to think sony  can keep making $100 price drops all day long, but I am pretty sure that hurts their bottom line quite a bit. Regardless of wether that $100 just cuts into profits are incurs losses its still $100 dollars of revenue.

The moment i heard that they're doing the 100$ price cut I had a feeling that it must be blow to them. But hearing that they cut out the emotion engine seems to have somehow lessened the hit.

I just wonder what'll Sony do in half a years time if the PS3 continues to remain dormant with no sign of a quick catching up. Let's face it, two price cut's within one year is a pretty obvious sign that someone's desperate.

I would agree with the sentiment that 2 price cuts seems desperate, but I don't know if I count Sony out quite yet. They still have a lot they can do, but I feel their situation gets worse every day that they are perceived to be in a slump. People pick up on that, and if in early '08 when a lot of its big games are getting ready to debut if the public sentiment is that the PS3 is a failure then no game is going to bring them back. So in that regards they really have to do something soon to get headed in the right direction.

Right now I hear a lot of hype and not a lot of delivery. Even the 80GB model isn't out yet..and I have to wonder..how long does it take to slap in a different HD and ship the thing? How many times a month do we get news articles about stupid Sony comments, or news about developers having second thoughts etc.. Those kinds of things mount and escalate the longer they are left unchallenged and with the recent comments about this X-mas not being so important I get the feeling that Sony doesn't feel like they need to make any moves.

The reason I bring those things up in this price cut thread is, because I wonder how many people will be waiting 1-2 years for a console to be in the $300-$400 price range when they can get one now that has strikingly similar graphics and identical games.

Edit: I think sony is still banking largely on brand loyalty, and I hope they are right. 

I believe Sony will another price drop later in the year.
THEY TRULY NEED IT.
Maybe, they will simply put the 80gb at 500$ and do the same on europe too.
This will not affect a lot their wallet.

People are waiting PS3 price drop because they want game with better graphism and that are not on Xbox360,

GT5/FFXIII/MGS4/Killzone2

and because Sony brand name.

That is all.
They dont want to buy a broken console as the Xbox360.
Personnaly, I think the hype is behind Sony, not Microsoft.

Sony has a lot of complex parts that can be redone, and reduce costs across the board.

I've heard the mainboard mentioned before; I would have to agree. Its unnecessarily complex, and through revisions, it should get cheaper to produce.

CPUs and GPUs will always cost money to manufacture. The questions I have, and if anyone can answer them that would be great, are:

1) Does Sony own the right to modify and produce their own CPUs and GPUs?

2) Who manufactures the GPUs? TMSC? IBM (unlikely)? UMC? Nvidia doesn't own their own fabbing equipment, so who is producing their parts?

3) What are the 65nm yields looking like? From the trouble that AMD is running into, it seems like there are some yield problems for getting speeds up to 90nm speeds.

65nm should drop power consumption quite a bit, which should cut down on the needs for the PSU and should cut down on the needed mainboard power circuitry. Yields should be better, and should cut down on prices per chip.

Prices on Blu-Ray drives should plummet over time, and eventually near the price of a standard DVD drive.

Hard drives can only drop so much, and most likely will plateau at some point, and either cost more after or the same for the lifetime.

Wireless, and the card readers will probably remain a constant cost, and will probably always be a consistent cost.

There is quite a bit of room for prices to drop, but a lot of it depends on time.