You are still forgetting much higher taxes in Europe. If PS3 is manufactured in China, they have to pay 10% import tax and VAT which is around 20% in most European countries. So they don't actually make much more money in Europe, perhaps only few dollars more.

If Sony thinks they can use the PS3 to decide the HD-Disc format war than they will cut the price again.

If they can sell 25-30 million PS3's than the format war is over by 2010 (before it was really supposed to begin).

25-30 million PS3's could mean a billion HD movie players and drives over the next 20 years and billions of discs, all with a licensing fee being paid to Sony and Blu-ray License holders. These losses would become an investment.

 No import tax in Europe. I think I have to say that again and again. Agree on the VAT part though.

 I would agree except that right now things aren't locked into that pattern just yet.  People as well as studios are very interested in digital distribution.  The ipod craze wet their apetite and now that folks know its out there they are interested.

I won't say it can topple the physical media altogether but it just might take a very large bite out of sony's pie.  Other formats won't have nearly as much of an effect because studios will already be locked into contracts with the winner of the format war long before any newcomers could have an impact.  The exception is of course unless someone comes out with a format that can use existing DVD players and yet still provide full length HD movies with room for extra content.  Something that is possible btw as the tech is available .

In any case it is definitely a possibility that Sony has decided to forsake any profits in the short term and look completely to the 2010 and beyond timeframe for their redmemption & profits.  The rest of the company can probably shoulder the burden barring any unforseen issues but you know they aren't going to like it even with a nice carrot being dangled out in front.

Ultimately I think sony is playing with fire right now and they might get burned or they might cook a gourmet meal...but they aren't going to end up with plain ole hamburger helper at this point..its an all or nothing type of thing they either look incredibly brilliant or incredibly stupid when this is all over. And honestly there is no way to tell how its going to turn out right now.

@SlorgNet
You have to be kidding me.....if blue ray was so cheap in manufacturing then stand alone players would not cost 400+$ right now. Besides, you talk about component prices coming down, but that practically only is about components that are used all around the world, ergo you would have to count out the cell becoming 30% cheaper during this year. Anyway, on just what basis do you claim that manufacturing of a PS3 is down to 500$?. Any proof?

And lastly, was it my imagination, or did the PS3 not cost more than 900$ to manufacture till not so long ago? Like 4-5 months ago?

OT===> Sony would be pushing it with another price drop. I admit that a 400$ 80GB sku would be tempting.....but then again i still need some games to validate any purchase. And no, i do not like the games that have appeared so far, better yet most games i want are multiplatform titles....choices, choices...

Sony will just phase in a 30 GB version phase out the 80 GB and call it a price drop

I believe in this price cut next year.
I also believed in the price cut this year as Patcher (and others ?) stated.

I know that Sony gaming division is already in the red ,but well, it seems they are still able to make price effort.

Prepare yourself to eat another crow next year ...

When does Sony start paying consumers $200 to take a PS3?

But seriously:

--Why would any rational consumer buy a console that drops in price every few months?

--Why not just keep waiting until the price stabilizes or nears zero?

Right now, it seems that Sony is prepared to loose all hardware profits (or not start gaining them...) just to save face. Remember that MS had a really hard time making the original Box profitable too, but they stayed in the game none the less.
If Sony can increase their userbase, they are capable of moving extreme amounts of software.

@SQRL: I'm sorry.  I didn't mean to imply that I thought that it would "win".