Sony Can Make the PS3 for Less, but Does It Matter?

Sony has drastically reduced the production costs associated with its PlayStation 3 video game console by 35 percent, according to information technology researcher iSuppli.

The latest generation of the PS3 costs just under US$450 per unit to produce, down 35 percent from the prior generation’s production cost of nearly $700 per unit, iSuppli said.

The steep reduction in PS3 production costs has some industry watchers wondering whether Sony will institute a price cut for the console, which costs $399 in stores. That’s much more expensive than the $249 price for the industry leading Nintendo Wii and the $299 price for Microsoft’s Xbox 360.

Sony’s stock was up nearly 2 percent to $21.37 per share in late-day trading on Tuesday.

Streamlining PS3 Production

Sony revisits the design and production of the PS3 at least once per year, said Andrew Rasweiller, director and principal analyst at iSuppli’s teardown unit.

Sony has reduced costs through the streamlining and optimization of the major circuit and chip components built into the PS3 — the graphics processing unit from Nvidia, the central processing unit from IBM, the console’s cell broadband engine and the Toshiba input and output bridge controller, Rasweiller told the E-Commerce Times.

“Now, [Sony] can fit more circuitry into more space, which reduces the overall cost of the silicon,” he said. “By doing that, they also drop the power requirements. It’s like going from a 120-watt bulb to a 90-watt or 75-watt bulb.”

Such cost-savings in production is typical of consumer electronics that go through numerous iterations over the life of the product, he said.

“Who knows what they’re going to do with their price structure — but they have done quite well with their cost structure,” Rasweiller added.

More Than a Price Cut Needed?

A price cut would be a good move for the Japanese consumer electronics giant, said Ben Bajarin, director of the consumer technology practice at the Creative Strategies Group.

However, a price cut may not be enough for the PS3 to catch up to the Wii and the Xbox 360, he said.”[Sony’s] got to continue to add services into the mix and continue to bring out great game titles.”

Microsoft is well ahead of Sony in that regard, noted Bajarin, with services such as Xbox Live and Netflix streaming, which allows Xbox 360 owners to watch movies from Netflix over the Internet on their consoles.

“Sony completely misunderstood the importance of Xbox Live and the value it adds to the gaming experience,” he said. “When we asked people why they bought an Xbox, Xbox Live was a big part of that decision.”

Sony was very late to the game in launching its online gaming service, the PlayStation Network, and has remained somewhat disconnected from the gaming community as a result, Bajarin observed.

PS3 Fell Behind Early

By being late to the market with the PS3, Sony fell behind Nintendo and Microsoft early on in the latest console cycle.

“Both the Wii and the Xbox continue to dominate,” Bajarin said. “Sony has to respond to that. It continues to innovate with the PlayStation Network, but it’s taken [Sony] a long time to catch up to the competition in terms of software, services and network support.”

The PS3 first hit the market in November 2006, long after the Wii and the Xbox 360. Why? Sony made a big bet on incorporating the best chip and Blu-ray disc technology into the PS3, noted Bajarin.

“Integrating Blu-ray was a price decision Xbox stayed away from,” he said. “It didn’t even try. The PS3 also came out at a time when Blu-ray players were still very expensive. You got a tremendous amount of capability with the PS3 that will give the console a lot of life, but it was expensive and time consuming.”

Meantime, the Xbox 360 has had a slew of hardware problems since it was first released.

“The console overheats ands becomes unusable,” Bajarin said. “In the last few batches of 360s, they had to replace the drive because it was scratching game discs and making them unplayable. I’ve gone through four 360s and still have the original PS3 I got.”