I don't know if anybody has pointed this out yet, but Production costs are only part of the equation when it comes to console pricing. Distribution and retail markup, not to mention marketing costs, all have to get factored into the profitability of a console. If the BOM for the PS3 is indeed $900, or even say $600, distribution, retail margin and marketing will add a couple of hundred dollars to the total cost.
I don't know if Merrill's estimates are right or wrong. But even if they are off by half, and the console costs $450 to produce, then fully loaded costs are more likely to be $600 per unit. That's a big loss per console at start, and can only be overcome if Sony sells tens of millions of units, so that economies of scale in production, marketing and distribution come into play.
Sony is in a tough spot.
Slashdot Mirror
I don't know if anybody has pointed this out yet, but Production costs are only part of the equation when it comes to console pricing. Distribution and retail markup, not to mention marketing costs, all have to get factored into the profitability of a console. If the BOM for the PS3 is indeed $900, or even say $600, distribution, retail margin and marketing will add a couple of hundred dollars to the total cost. I don't know if Merrill's estimates are right or wrong. But even if they are off by half, and the console costs $450 to produce, then fully loaded costs are more likely to be $600 per unit. That's a big loss per console at start, and can only be overcome if Sony sells tens of millions of units, so that economies of scale in production, marketing and distribution come into play. Sony is in a tough spot.