Sony PS3 Costs Less To Make, But Still A Money Loser

Sony's new-generation PlayStation 3 costs less to make than the previous version, but the video-game console is still a money loser for the financially troubled consumer electronics giant, a market research firm's study showed.

A teardown analysis by iSuppli found that the latest PS3 costs $448.73 to make, or 35% less than the $690.23 for the first-generation model. The totals do not include software, box contents, and royalty expenses.

With the PS3 selling in the United States for around $399, Sony is still losing money on each console sold, albeit far less than before. "With its new-generation PS3, Sony has come closer to breaking even, although it probably hasn't quite reached that mark yet," iSuppli analyst Andrew Rassweiler said in a statement released Monday.

With additional hardware changes, iSuppli said Sony may be able to reach breakeven in 2009, about three years after the PS3's release.

Nevertheless, the savings in manufacturing cost is unlikely to help PS3 sales, which have lagged those of the Nintendo Wii and Microsoft (NSDQ: MSFT) Xbox 360. Analysts say the PS3's higher price has been a major reason for its lackluster market performance during the economic recession, but with Sony facing serious financial troubles, it's unlikely the company can afford to drop the console's price further.

Adding to Sony's troubles was a particularly poor performance of the PS3 during the holiday shopping season. Early results show that U.S. sales dropped 19% in November from a year ago, while sales doubled for the Wii and rose 8% for the Xbox 360, according to The Wall Street Journal. In the meantime, poor sales of televisions and digital cameras have forced Sony to lay off thousands of workers and close factories.

ISuppli found that Sony was able to cut manufacturing costs with the new-generation PS3 by changing and integrating some key components. The latest model contains about 2,820 individual parts, compared with 4,048 in the previous generation.

Among the major changes in componentry is a new version of IBM (NYSE: IBM)'s Cell Broadband engine, which serves as the console's central processing unit. The new technology costs $46.46, down nearly 28% from the original component. In addition, the new version of Nvidia's Reality Synthesizer, which acts as the graphic processing unit for the PS3, costs more than 30% less, or $58.01, iSuppli said.

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