Tearing Into the PlayStation 3

p>Tomorrow, Sony Corp. will begin selling its much-anticipated PlayStation 3 video-game console in the United States. Due to well-publicized manufacturing problems, only about 400 000 PS3 consoles will initially be available for sale. Media reports are already heralding the long lines of eager buyers waiting at retail outlets. With a base price of US $499 for the lower-end 20-gigabyte drive model, the PS3 is something of a bargain for gamers. According to market analysis firm iSuppli, the PS3 will sell in the U.S. for only about 60 percent of what it cost Sony to make the units.

It's an old story in consumer product marketing: give away the razor and sell the blades. Like its competitors in the multi-billion dollar video-game industry, Sony typically underprices its consoles and attempts to make its profits from game software sales. And it's a savvy strategy. Market analyst NPD Group has estimated U.S. sales, as of 2004, of game hardware at $3.7 billion and software at $6.2 billion. So just how much does it cost to build a PS3 console?

To answer that question, the folks at iSuppli have taken the PS3 apart and analyzed its components, along the way rendering judgment on its engineering. iSuppli's "Teardown Analysis" reveals that, while the 20-gig PS3 retails for $499, its parts cost $805.85; and the 60-gig version goes for $599 but costs Sony $840.35. And that's just for the components, leaving production, shipping, and other costs unaccounted. So the units truly are loss leaders for the Japanese electronics giant.

One of the pricier components in the PS3, according to iSuppli, is the Cell Broadband Engine from IBM Corp., which costs $89. The iSuppli analysts credit the Cell with providing the equivalent computing power of eight individual microprocessors and endowing the PS3 with its supercomputer-like power. (We wrote about the Cell processor in our January "Winners and Losers 2006" cover story, "Winner: Multimedia Monster".) The iSuppli report states:

'[Our] dissection reveals the PlayStation 3 is an engineering masterpiece that sets a new high mark for computing price/performance even when considering it is more expensive than its nearest rival, the Xbox 360 from Microsoft Corp. With the PlayStation 3, you are getting the performance of a supercomputer at the price of an entry-level PC,' said Andrew Rassweiler, teardown services manager and senior analyst for iSuppli. 'Sony has delivered an amazing level of performance for the cost. The reason why the PlayStation 3 is so costly to produce is because it has incredible processing power.'

"If someone had shown me the PlayStation 3 motherboard from afar without telling me what it was, I would have assumed it was for a network switch or an enterprise server," Rassweiler said. "There is nothing cheap about the PlayStation 3 design. This is not an adapted PC design. Even beyond the major chips in the PlayStation 3, the other components seem to also be expensive and somewhat exotic."

So all you gamers out there in the U.S.A., get ready to pounce tonight when those first, scarce units go on sale at midnight. And stand by for our next cover story, coming in December, which will take you behind the scenes with the programmers responsible for delivering some of the titles Sony will be counting on to help make back the money it lost getting the PS3 out the door in the first place.

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