From question 8 of Sony's financial conference.

Transcript (real time translation from Japanese to English, which explains the sometimes weird sentences):

"Q: Earlier the CFO talked about the fact that the prospect for Games was lowered because of the price of the (inaudible) were not high and because of the cost structure. As for the business model for the games including semiconductors, do you still have some structural factors? The sales of semiconductors to Toshiba, I believe, in part is that you create a structure so that you don't have to have loss even if there's a variation in the semiconductors.

A: The fact that we sold the semiconductor business to Toshiba is for one thing, that the semiconductors for Games are very high in cost, and we need to move from 65 nm to 45 nm. And when we make this shift, can we do it all by ourselves? It is quite costly and you need a lot of investment. If we are to introduce 45 nm we need to have the capacity. Are we going to be able to cover all the capacity that would be required?

And when you think of that strategically we felt that it would be a better option to do that, from the standpoint of profit. You talked about the business model that we have, whether it is good or not... The price deterioration (?) of PS3 is actually more severe than we had expected. With the hardware of PS3 it is difficult to obtain profit as compared to when we were thinking of this at the beginning.

So until a certain point in 2008 we will not be able to see profit on hardware for PS3. But if you combine the hardware and software for PS3 we will be able to obtain profit some time during next year. Whether we will have a difficult time with the PS3 platform forever, as far as we are forecasting we do think that we can expect to see profit some time in the next year. I believe that last year at this time the CFO was somewhat pessimistic about PS3, but I think it is difficult to forecast a number of units sold for these games. I think the basic point is how much you can reduce the cost. By having Toshiba take care of that part, maybe the adjustment for the mid-term business model for the Games is...

Q: Well of course you will take various operational measures, but on the part of Sony do you [inaudible] that you have done what you can do for now?

A: As for semiconductors, the present strategy, I believe is workable. There is OP and there is the substrate or the board design. We have made quite a bit of effort in these areas. In that sense we're not handing everything to Toshiba."

 

I'm sure Toshiba is is going to make every effort to reduce Sony's costs. Just like Sony is going to make every effort to make HD-DVD a success.

Soriku said: P.S. Grammer question - You know they do the [*insert something here*]? Why do they do that? It's been bugging me for a while :3

Simply to say that whatever the person said was not heard/understood as is the case when they put [inaudible].

Usually you see the phrase [sic] more often which means that there is an spell/grammar error in the quote or statement and it was noticed but left in to keep its integrity as a quote.

FishyJoe said: I'm sure Toshiba is is going to make every effort to reduce Sony's costs. Just like Sony is going to make every effort to make HD-DVD a success.

Maybe Sony made a deal with them in which Toshiba promised a certain decrease in semiconductors' cost over time? There must be some catch here...

 

why doesn't IBM come into the equation? i thought IBM also spent a ton on Cell Development.

FishyJoe said: I'm sure Toshiba is is going to make every effort to reduce Sony's costs. Just like Sony is going to make every effort to make HD-DVD a success.

 Well Toshiba will have to make some effort to be competetive or Sony could always turn to IBM to provide them with chips.  IBM is already the leader in developing more advanced Cell chips so it is not like Toshiba is the sole provider of these.  I figure Sony prefers Toshiba as they both have an investment in the fab plant so that they get back some of the money they spend on these chips when buying from them but if Toshiba charges too much that advantage disappears.

"The price deterioration (?) of PS3 is actually more severe than we had expected. With the hardware of PS3 it is difficult to obtain profit as compared to when we were thinking of this at the beginning."

Translation:

*$^%, we're screwed.

FishyJoe said: I'm sure Toshiba is is going to make every effort to reduce Sony's costs. Just like Sony is going to make every effort to make HD-DVD a success.

  

Educate yourself.

Its called a contract.