Wrong:

Wave of Sony layoffs reaches SCEA

160 jobs at risk across Sony Europe

Not necessarily, in fact I don't think so. Sony was never expecting to break even on hardware until near the end of the fiscal year, furthermore the US dollar and Euro have weakened a lot against the Yen. So much indeed that if convert the current prices to Yen, it looks like the PS3 had another price cut. This is something they didn't factor (and couldn't have factored) in their previous estimates. The same goes for Nintendo and every other Japanese company.

By the way, the US dollar and Euro got even weaker after the 2nd quarter ended, so the 3rd quarter will be even worse in this respect.

You are jumping to conclusions, as there are enough factors in place to explain why a loss happened. Instead of theorizing so much, you should look at their financial report where they show:

- Revenue increasing from 243.4 to 268.5 billion yen  (year-on-year).

- Profit (loss as negative numbers) increasing from -96.7 billion yen to -39.5 billion yen (year-on-year).

This means that expenses were 340.1 billion yen last year (2nd quarter), and 308 billion yen this year (2nd quarter). They managed to reduce their expenses, even with increased hardware shipments (1 million more units of hardware shipped).

Conclusion: The hard data says they achieved significant cost reductions, their main problem being that revenue barely increased due to price cuts and currency issues. Your "new factor" theory doesn't fit the data.

When I'm talking about inexplicable losses, I am arguing about things that happened between Q1 and Q2. Pointing to layofs that happened almost 1.5 years ago is pointless, as well as comparing with last years Q2 results. It should have been "smooth sailing" between Q1 and Q2 (apart from emerging economical problems on the % level), however the losses aggravated in Q2 compared to Q1 so something is strange (like they had to toss boatloads of unsold older, now unsaleable PSPs into the recycling bin..).

Again for the third time: what you quote/write is an utterly, totally, absolutely, completely irrelevant point for any company.

You are arguing that if I make X dollars with product A, I cannot be profitable with product B if it costs more than X to develop.

This is so completly rubbish there is no need to argue about it. Nowhere in the "when do I make profit" equation does a factor enter that says if I made $100'000 by selling eggs that I can't ever make profit with cars that cost $100'001 to develop.

Theres a serious opportunity cost here as well.

Had they gone for a simpler architecture - no Cell - no Blu Ray would they infact be profitable/not lost so much now and just been carried by the PS brand?

My reasoning is this - If the PS3 was carried by the playstation brand, what would have happened with simpler hardware and a lower launch price?

You're right, the PS3 could still turn into a massive success bigger than the PS2. Not many are counting on that to happen though.

Obviously it would have to appear (in that simpler form) on the market before the Xbox360, otherwise what would have been the point of it?

Does it really have to be a bigger success? On the technical side, it has already settled the Blu-ray/HD-DVD battle. On the money side, it would of course be good for any manufacturer to follow with a successor product that is more profitable than a predecessor product. We are in year 2 of a new product that is planned to last ten years, so lacking a time machine everyone is invited to guess whether Sony managment in 8 years considers PS3 a failure or not. looking back two years, it is obvious that financially the PS3 development did not bring the results Sony planned but that ship has sailed now and they have to make the best out of the situation as it stands now. (Also mind you that Sony was essentially a dysfunctional company a few years ago so I am actually surprised they can achieve profitability within 2 years after launch).

We were talking about the money side, weren't we?

We're in agreement there, and I think Sony's new CEO is doing a very good job. Unfortunately for Sony, there are now too many factors out of their control which are going to absolutely hammer them for some time (who knows for how long).

In the immediate future, this holiday quarter isn't going to look pretty at all... Let's take the Euro. From the end of September until now, it has dropped 17%. This will easily erase most profit margins they might have had (imagine they did a 17% price cut in all of their products sold in Europe).

http://finance.yahoo.com/currency/convert?from=EUR&to=JPY&amt=1&t=3m

(the USD had a smaller drop of 7%)

It's really crunch time for Sony, and they will have to get leaner. What product lines this will affect is anyone's guess...

Is is crunch time for everybody, even for Microsoft. Right now they are probably praying heavily that nobody really buys their Arcade model which is the console that rakes in the biggest losses of all consoles. I don't know if Sony is still producing PS3 in Japan but that factory is certainly doomed now.. interesting times. The variable exchange rates are really unpredictable as we don't really know what currencies are involved in all the manufacturing transactions. It could go any way, even that the manufacturers in China could be holding the short end of the stick and not MS/Sony/Nintendo...