PlayStation 3 Manufacturing Cost Estimated

According to a Merrill Lynch of Japan report quoted by the Japanese magazine Toyo Keizai and translated by consumer website GameSpot, the initial manufacturing costs for the PlayStation 3 are suspected to be around 54,000 yen, or $494 USD. The report estimates that the launch costs for the three main components of the system -- the RSX graphics chip, Blu-Ray disc drive, and Cell processor -- will cost 11,000 yen ($101 USD) each. The pricing could be dangerous for Sony, given that the Xbox 360 will launch at $299 and could cut its price even lower alongside the 2006 launch of the PS3, in an attempt to beat Sony's new system on price. Sony has not revealed its launch price point, but the Merrill Lynch Japan report expects the PlayStation 3 hardware to initially retail for 44,800 yen ($410). Sony has traditionally taken large losses on its new hardware to gain a market share advantage, as SCEI CEO Ken Kutaragi alluded to when telling Toyo Keizai: "When Nintendo was selling its 16-bit machine at around 12,500 yen, we sold the first PlayStation at 39,800 yen. The press was saying that it was expensive, but it was a huge hit." However, it may face a disadvantage if forced into a price war, as Microsoft and Nintendo are each making more conservative choices when it comes to hardware: Microsoft is using the currently-existing DVD spec for its own media, while Nintendo has eschewed support for high-definition video, in the interest of maintaining its own history of turning a profit with each console unit sold. Furthermore, Sony is currently still taking losses on its PlayStation Portable hardware in a continued, not yet successful attempt to beat the Nintendo DS and Game Boy Advance in the handheld game marketplace. The PlayStation 3 is currently expected to result in losses of over $1 billion in its first year of sales, in addition to the $1.83 billion already invested in R&D for the Cell chip, co-produced by IBM and Toshiba. Speaking on the chances of success for the PlayStation 3, Kutaragi commented simply: "It all depends on whether people want it. Of course, I'm confident that the PS3 is a product that people will definitely want."