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PlayStation 3 Delayed, Over $800?
AWhiteFlame writes "Cnet is reporting that a research report issued by Merrill Lynch suggests that the Sony PlayStation 3's American release may be postponed until 2007. From the article: 'The analyst firm proposed the idea that high costs and Sony's decision to use an 'ambitious new processor architecture--the Cell' is making it look like the company might not be able to meet its goal of getting the PS3 out in the U.S. this year.' Sony did not immediately respond to a request for comment." The official report (pdf) would also seem to indicate that the console will be somewhere in the neighborhood of $900 when it launches.
I'm not an insider by any means, nor a PS "fan boy," but isn't it likely that this is just very intelligent marketing by Sony? It's generally accepted that a game console launching at $900 (hell, $600), isn't going to happen in this day and age of mass market acceptance being an essential requirement of the development of any piece of electronics. This falls right in line with the Blueray machine costs . . . make it seem like astronomically expensive hardware fit for a king, and then release them at a fraction of the price, and sooner. I don't care when they release it, but I'm betting it will be this year, and at a $500 price point or lower.
Apple just did it with the Intel switch. First they've started releasing the stuff 6 months earlier than they said they would, and now their upgrading the processor clock speeds for free. Who wants to bet that wasn't in the writing already for the entire gestation of their Intel plans. If there were two companies I would compare hype-capabilities apple-to-apple (sorry), it would be Apple and Sony.
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...pointing out that this is clever marketing from Sony, or this is just some whacky stuff from Wall Street, remember that the analysts who wrote this report make their livings and substantial salaries from analysing their target companies. They know these companies inside out, because if they didn't they would be out of a job before they knew. When you consider their balls are really in a vice grip because if they get their predictions their wrong, their companies stand to lose a lot of money, then you give a bit more credence to reports of this nature.
Having read the pdf file, the analysis seems quite reasonable, and well considered, and utltimately quite persuasive. Whether it persuades you is a different matter, but before you dismiss the report out of hand, remember that the authors spend a lot of time trying to understand and predict what Sony is going to do, and therefore are better qualified than most third parties to reach conlcusions about slippages and prices.
The thing that is interesting to me here is this: For the last year, people have been repeating the factoid that the PS3 will apparently cost $500 to produce. If you spend a little bit of time digging, though, you'll find that all such claims ultimately stem from a single oft paraphrased-and-then-meta-paraphrased report by Merrill Lynch about halfway through last year.
Now Merrill Lynch says the PS3 will cost $900 to produce.
I can only conclude that the amount Merrill Lynch believes the PS3 will cost to produce approximately doubles every nine months. At this rate, by the end of 2006 Merrill Lynch will believe the PS3 costs $2000 to produce, and by the end of the PS3's lifespan Sony will be paying a full $4,551,111 per unit to manufacture the PS3.
Clearly, Sony has a serious problem here.
Irritable, left-wing and possibly humorous bumper stickers and t-shirts
a research report issued by Merrill Lynch suggests that the Sony PlayStation 3's American release may be postponed until 2007 [...] The official report (pdf) would also seem to indicate that the console will be somewhere in the neighborhood of $900
Is this the same Merrill Lynch that was accused of lying about the health of corporations such as Worldcom and Enron? The same Merrill Lynch that agreed to pay $100 million in fines? The same Merrill Lynch that may owe several billions of dollars to institutional shareholders and others for gross deception?
Remind me why I, you, or any news outlet for that matter, should have any faith in their statements?
The PS3 may be a loss leader, but there still is a limit. If the manufacturing cost is $900, and sony sells its console at only $500, it means that the company estimates that it can get at get back those $400 in a way or an other.
Given the fact that the usual margin for the console manufacturer on game sales is 20%, that makes only $12 for each $60 game. Simple maths says that in those conditions, sony would have to sell in average more than 30 games per customer to break even on the machines it sold with a so large discount.
And except for the rare hardcore gamer, how many people buy 30 games for a machine in one generation ?
The article states that $900 is the cost to Sony. It won't cost that retail, they always take a hit. The original Xbox cost more to make, than it sold for. It's called a loss leader, look it up.
Then someone, probably many someones, are smoking crack.
Explain to me how Sony is going to make up $400 per console on average if it costs them $900 and they sell for $500? A loss leader is not some magical thing where you sell a $900 item for half price and make a profit. The way it works is that you somehow manage to make more than the cost of the item through some other kind of sales. My question to you is: give me some kind of business model where Sony is going to make $400 bucks per console off some other kind of sales? Put another way, that's about 7 games. If the games cost nothing to make and Sony took home 100% of the profit, they'd have to sell 7 games for each console to break even.
Sony is participating in a mature business where it is the market leader. Market leaders don't give away very much in order to gain market share, because they already have market share. They're in the business to make a profit. They may, in fact make more of a profit off blades than razors, but they won't give away a razor that costs them more than they can make in blades.
That said, TFA is counting costs from a place that is not based in reality. As the IP owner and manufacturer of the Blue-Ray drive, it will not cost Sony anywhere clos to $350 to manufacture a drive and put itinto a Playstation. Their R&D and manufacturing facilities costs can not be put into a per-unit cost in the same way as if they were buying the drives from Toshiba. You can make any kind of argument you want here about 3-year right-offs and the like, but the fact is that those dollars are in reallity going into a whole industy and not just the PS3. Claiming the Blue-Ray drive as a $350 manufacturing cost of the PS3 is like claiming it costs $350 per unit to manufacture Windows Vista. You may be able to cook the numbers that way, but that kind of per-unit cost just isn't relevant to this particular kind of manufacturing.