I just posted my take on this...couple important things:

1) You and I can walk into a Gamestop and buy a PS3 fro $400. But retailers buy products for 5-10% less than what you and I do so that they can make money on the product (if they don't make money on the product why sell it?). So Sony is selling PS3 to Gamestop for like $370. So if iSupply is correct, the losses are still near $80.

2) iSupply reported the figures in dollars, which is fine. But the dollar buys 30% fewer yen that last year. Sony is a company that operates in Yen. So the losses are likely bigger, because the PS3 components were bought en masse when a dollar bought more yen, but the product made for those components sells for less than 'the sum of its parts' even accounting for the expected loss.

3) iSupply does suck at predicting the future, but they do have a good track record in determing what it costs to make a product.

4) As close is Sony is to profiting right now in Europe, they are going to have to drop price in 2009 I would imagine. Its going to be a big cut too, so there isn't likely to be a huge period when game sales can push the PS3-platform into the Black from the Red for a quarter. I would imagine the USA division will hold off until mid-year, and try for a smaller price cut, because even at the current pace of the drop in production costs, it looks like PS3 breaking even in the USA is a September proposition at earliest - and thats without a price cut, which would delay it into 2010 or beyond.

"Its going to be a big cut too"

Jacob, by how much, do you speculate?

You also should add that these estimates tend to focus on the console hardware and ignore costs like the packed in controller, power supply, bundled games (and other incentives), packaging, transportation, warehousing, etc.

Basically, Sony would need to be manufacturing the core console for dramatically less than its sale price before they are really not losing money.

ONLY $50 loss? $50 x 1 million PS3s is alone $50 MILLION DOLLARS LOST lol

They may be idiots in the sense of not knowing the outcome of the Console War.

But I beg to differ that their idiots in knowing how much a Console would cost.

It's like talking to a Computer Geek about Car Problems.  Chances are if they tried to help you, they would do more damage.

Oh yeah, it does. Trust me on that.

Sony is a multinational company and does NOT operate on yen. They restate their overall accounts in current yen for end-of-the-year reports, but that has nothing to do with daily operations. Their Euro biz accumulates euros, US biz dollars, etc. The PS3 is built mostly in China, with a few high-end designed in Japan, so the yuan-dollar-euro exchange rate is what matters. Thing is, the Wii and 360 are also built in China, so no company has any advantage over the others.

iSupply doesn't have any special insight into Sony's cost structure. They seem to be running down a vendor list and estimating individual parts, which misses (1) volume discounts and (2) Sony's internal cost reduction system, which is highly efficient.

@SlorgNet - Nice post.  People don't seem to understand the bolded part when they discuss Sony's financials.

They may be multi-national, but the yen is still going to cost them billions in earnings. Just about all the electronics they make are built in China, but even when you factor that in it's still going to cost billions because of the Yen. Read their Sony's earnings revision if you don't believe me.

According to their own estimates, the high Yen will cost 130 billion yen in earnings. And since this revision was made, the Dollar and Euro have drop significantly, so it will be much worse than this revision.

http://www.sony.net/SonyInfo/IR/financial/fr/08revision_sony.pdf

Due to a change in our assumptions for foreign currency exchange rates in the second half of the
fiscal year, as noted above, to reflect the significant appreciation of the yen above the rates
assumed in July, we expect our results to be lower than the July forecast with operating income
decreasing by approximately ¥130 billion, mainly within the Electronics and the Game segments
(assumed foreign currency exchange rates in July were approximately ¥105 to the U.S. dollar and
approximately ¥165 to the euro for the quarter ended September 30, 2008 and approximately
¥105 to the U.S. dollar and approximately ¥160 to the euro for the second half of the fiscal year).

For those people that don't want to believe that the PS3 is losing money on each system, the SCEE President David Reeves said himself that they "still make a loss on hardware".  The iSuppli estimates seem to fall in line with what Reeves has said.

http://www.thebitbag.com/2008/12/19/no-price-cut-for-ps3-anytime-soon-at-least-in-europe/

Firstly, can you give us an update on the progress made by the Sony games business this year?
Two years ago we lost $2bn dollars globally on the SCE business – we thought at the time it was a lot of money, but in perspective with things like Citibank it’s not that much. And last year we lost $1bn dollars.

Our target this year is to break even, not on a cumulative basis, but on an operating business. Our point of view from the 100 markets we work in, we have PS2 which we’re making a profit on, PSP where we also make a profit, and PS3 where, if we just look at it in Euro terms, we are in a profit on software even though we still make a loss on hardware. It’s likely we will get into profit in Europe this year. So SCEE is a solid, safe pair of hands for SCE.