Sony's PlayStation 3 will sell at a premium when it lands on store shelves on Friday. But a dissection of the video game console that has fans already lining up at retail stores shows it to be a bargain, costing far more to build than its $500 price tag.
Sony and its closest rival Microsoft traditionally sell their consoles at a loss, making their money from accessories or from game creators who pay for using the platforms. But in the case of PS3, Sony has gone beyond the norm, spending about $300 more on components than the starting retail price, market researcher iSuppli said. The cost for components, however, is expected to drop over time as manufacturers ramp up production, making more components for less.
Because several years usually pass between versions of the PlayStation, Sony is apparently choosing to offer a machine that has the muscle to wow gamers for quite awhile. The company launched PS2 in the United States six years ago.
"I believe it was their goal to stay ahead of the curve," iSuppli senior analyst Andrew Rassweiler said. "It's a design that's meant to be completely cutting edge."
Among the most advanced features is an IBM-built central processing unit, called the Cell Broadband Engine, which provides the equivalent computing power of eight individual microprocessors. "You're talking about buying a supercomputer for the price of an entry-level PC," Rassweiler said.
The component is a big contributor to the $805.85 in materials and manufacturing cost for the $500 20-GB hard drive PS3, and the $840.35 cost of the $600 60-GB unit.
Other exceptional components sure to make geeks swoon is the RSX Reality Synthesizer from Nividia that delivers some of the best in high-definition graphics, and a high-speed memory interface from Rambus that uses four Samsung Electronics 512-MB DRAMs, iSuppli said.
The PS3's design is a marvel because of Sony's use of all the available space, while still managing to maintain sufficient airflow to cool the unit. Such elements have sparked descriptions like "engineering masterpiece" from iSuppli. "That's our belief in a nutshell," Rassweiler said.
PS3's complexity, however, has caused production problems that have translated into far fewer initial shipments than can possibly meet demand for the market-leading console. In Japan, only 100,000 units shipped during the Nov. 11 launch, and only 400,000 units are expected to be available Friday in the United States. The European launch, meanwhile, has been pushed back until March.
The expected scarcity has not been lost on diehard fans, who started lining up Wednesday at Best Buy and Wal-Mart stores, the Associated Press reported. No. 3 Nintendo is set to launch on Sunday its WII console, which also is expected to sell out. There will, however, be more units available than PS3s. Microsoft, which makes the No. 2 Xbox, launched its console a year ago.
Michael Cai, analyst for Parks Associates, doesn't expect Sony to suffer much from the shortages in the long term. People who want a PS3 will wait. However, some sales may be lost during the holiday shopping season. "Parents and other gift givers who were waiting for a PS3 may decide to get a Nintendo or Xbox," he said.
In terms of price, U.S. buyers are getting the shaft from Sony, which is selling the PS3 for 20% less in Japan, "mainly because Japanese gamers said a lot of bad things about the high price," Cai said.
Nevertheless, despite the high price and initial shortages, Sony is expected to hold on to its lead in the market. Said Cai, "PS3 is definitely going to outsell Xbox 360 in the long run."
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