PlayStation 3 - Sales and Production Costs

Sales and Production Costs

Although its PlayStation predecessors had been very dominant against the competition and were hugely profitable for Sony, the PlayStation 3 had an inauspicious start, and Sony chairman and CEO Sir Howard Stringer initially could not convince investors of a turnaround in its fortunes. The PS3 lacked the unique gameplay of the more affordable Wii which became that generation's most successful console in terms of units sold. Furthermore, the PS3 had to compete directly with the Xbox 360 which had a head start, and as a result the platform no longer had exclusive titles that the PS2 enjoyed such as the Grand Theft Auto and Final Fantasy series (regarding cross-platform games, Xbox 360 versions were generally considered superior in 2006, although by 2008 the PS3 versions had reached parity or surpassed), and it took longer than expected for the PS3 to enjoy strong sales and close the gap with the Xbox 360. Sony also continued to lose money on each PS3 sold through 2010, although the redesigned "slim" PS3 has cut these losses since then.

The PlayStation 3's initial production cost is estimated by iSuppli to have been US$805.85 for the 20 GB model and US$840.35 for the 60 GB model. However, they were priced at US$499 and US$599 respectively, meaning that units may have been sold at an estimated loss of $306 or $241 depending on model, if the cost estimates were correct, and contributing to Sony's games division posting an operating loss of ¥232.3 billion (US$1.97 billion) in the fiscal year ending March 2007. In April 2007, soon after these results were published, Ken Kutaragi, President of Sony Computer Entertainment, announced plans to retire. Various news agencies, including The Times and The Wall Street Journal reported that this was due to poor sales, while SCEI maintains that Kutaragi had been planning his retirement for six months prior to the announcement.

In January 2008, Kaz Hirai, CEO of Sony Computer Entertainment, suggested that the console may start making a profit by early 2009, stating that, "the next fiscal year starts in April and if we can try to achieve that in the next fiscal year that would be a great thing" and that " is not a definite commitment, but that is what I would like to try to shoot for". However, market analysts Nikko Citigroup have predicted that the PlayStation 3 could be profitable by August 2008. In a July 2008 interview, Hirai stated that his objective is for the PlayStation 3 to sell 150 million units by its ninth year, surpassing the PlayStation 2's sales of 140 million in its nine years on the market. In January 2009 Sony announced that their gaming division was profitable in Q3 2008.

Since the system's launch, production costs have been reduced significantly as a result of phasing out the Emotion Engine chip and falling hardware costs. The cost of manufacturing Cell microprocessors has fallen dramatically as a result of moving to the 65 nm production process, and Blu-ray Disc diodes have become cheaper to manufacture. As of January 2008, each unit cost around $400 to manufacture; by August 2009, Sony had reduced costs by a total of 70%, meaning it only costs Sony around $240 per unit.