Sony doing well to cut production costs, still going to suffer.

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The PS3 is a very impressive piece of technology, but by being so impressive it carries a devastating production cost. According to iSuppli (via GameDaily) the cost to produce a single PS3 in 2006 was $840. Now, however, it costs a paltry $448.73 per unit. As the PS3 is sold for $399, Sony is now only $48.73 off breaking even.

This is a reason to cheer, but that will be short-lived. Read why after the jump.

The price of hardware has contributed to the almost-halving of production costs. The price of the Cell processor has gone from $89 to $46, and the Nvidia graphics chipset has been reduced from $126 to only $58.

The other major contributor to the production costs, besides those outside of Sony’s control, is the reduction in the number of physicals parts used to create the PS3. According to iSuppli, the PS3 started life with a total of 4048 different parts (including those used in the controller), but now it has only 2820. iSuppli analyst Andrew Rassweiler said that at the end of the day the PS3 is doing the exact same thing it did 2 years ago, but with two-thirds as many parts.

While this is all lovely, and the promise of breaking even shines beautifully on the horizon, their is a major hurdle for Sony to clear before achieving this- competitiveness.

The November NPD’s show Sony trailing Microsoft and Nintendo by a considerable margin. The PS3 sold only 373k units while Microsoft sold 836k units. The Wii sold over two million so the PS3 should concentrate on catching up to the X360. However, that’s easier said than done as the price difference between the two consoles gives the X360 the lead in terms of sales and price. I’m stating the obvious here, I know, but bear with me as there is a point to this paragraph. For the PS3 is be truly be competitive, it has to match or improve on the X360’s price point. For it to do that, it would require a price cut of sorts in the region of $50 to get closer to the X360 and negate the current price difference. By doing this, the loss made with each console becomes greater and Sony will have to focus once more on making money through software sales.

However, Sony’s software sales have been consistently disappointing. According to VGChartz , Sony only had ONE title in the top 20 in the week ending December 20th, which was Call of Duty World at War. The 360 version charted at #5, selling almost twice as many units that week. In terms of total units sold, the 360 had three times as many titles sold.

All this leads to the big question of what can Sony do to make a success of the PS3? They have lost exclusivity of Final Fantasy XIII which is a system seller, they are making a loss on the system that already needs a price cut, their current first-party titles aren’t doing as well as expected. So I pose this question to the audience, what can Sony do to become a real contender?

[Please note all the above statistics are from North America]

Last Updated: January 2, 2009

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