PlayStation 3 component prices: Why so high?

  • By Michael Kanellos, Daniel Terdiman, News.com
  • Posted Feb 23, 2006 12:46 pm PT

The PS3 and the Xbox 360 may both look shiny on the outside, but it's the guts of each machine that determine their retail price tags.

From News.com

Consumers who buy the PlayStation 3 will certainly get high-priced components in that new game console whenever it hits store shelves. The big question will be how much of a financial loss Sony will have to swallow on each box in order to get consumers to buy them.

The estimated total bill of materials for Sony's next-generation game console will be between $725 and $905, according to various estimates. In comparison, the Xbox 360 from Microsoft comes with a component bill between $501 and $525.

Though Sony hasn't disclosed the price of the PS3, analysts figure it will have to be in the ballpark of $299 to $399--the price for the two versions of the Xbox 360. PS3 pricing speculation has heated up in recent days, along with rumors that the long-awaited game console could be delayed for up to a year.

The pricing disparity between the components for the two consoles comes largely because the Sony box will contain a Blu-ray drive, which supports the new high-definition Blu-ray DVD format. That could cost $200 to $300 or more per console. The processor in the PS3 also will likely cost more.

The unusual nature of the new console's component menu makes it difficult to pinpoint the cost estimate. The PS3 will be one of the few machines on the market with XDR memory, based on designs from Rambus.

Some analysts have suffered addition problems, too. Merrill Lynch wrote in a widely publicized research note that the component bill would total $900, not including a detachable drive. But Merrill later told CNET News.com that it meant to say $800.

Nonetheless, the cost of the rest of the components is roughly equal for both the Sony and Microsoft consoles, according to various analyst estimates.

The price estimates for materials do not include marketing, software development, advertising, or other costs, which will push Sony's total cost per console even higher. A Sony representative said the company would not comment on pricing.

A mismatch between the retail price and the cost of materials for a game console isn't unusual, because console manufacturers expect to make up the difference by selling games to run on the consoles. That's what Microsoft did with the Xbox 360.

The cost of making game consoles also drops rapidly over time because manufacturers don't usually upgrade the configurations year after year, while the cost of the components they're using drops. Merrill Lynch, in fact, estimates that the component bill, not including the detachable drive, will drop to $320 in three years.

Ken Kutaragi, who heads up Sony Computer Entertainment, is counting on it. In 1999, the processor and the graphics chip inside the PS2 took up 239 and 279 square millimeters in surface area, respectively, which made them relatively large (and hence relatively expensive) chips, he noted in a speech in February in San Francisco. By 2004, the two chips were condensed into one that took up only 87 square millimeters, almost one-sixth the size.

Here's how the components stack up.

Processor: The PS3 will be a showcase for the Cell processor from the SIT powers (Sony, IBM, Toshiba). The cell consists of a PowerPC core with eight signal processing cores. While the large number of cores help run multimedia applications, they also make for one large chip. Cell will take up 221 square millimeters of space, larger than the 168 square millimeters of the Xbox 360 processor. Larger chips are typically more expensive to make.

A greater percentage of the real estate on the Xbox 360 chip, also from IBM, is given up to cache memory. Cache is typically cheaper to manufacture than logic transistors, which own more of the real estate on Cell. As a result, Sony faces two disadvantages in terms of cost.

Kevin Krewell, editor in chief of the Microprocessor Forum, estimates the chip will cost between $150 and $170 at launch. Merrill Lynch puts the cost at $230, dropping to an estimated $60 in three years. In comparison, iSuppli estimates the cost of the Xbox 360 chip at $106.

The optical drive: For the PS3, this is the killer. In 2006, manufacturers will have to pay $200 to $300 for Blu-ray drives, according to Wolfgang Schlichting, an analyst with IDC. By 2007, the price will drop to between $100 and $200. The Xbox has a standard DVD drive, with an optional HD-DVD drive.

Standard DVD drives sell for $20 or less. Even recordable DVD drives at wholesale sell for a mere $28 to $32.

Graphics chip: This looks like a tie. Microsoft worked with ATI Technologies to develop a chip that costs about $141, according to iSuppli. Sony teamed with ATI rival Nvidia for its chip, which could cost $120 to $150, according to Dean McCarron at Mercury Research. Since the two chips are based on the high-end PC chips from the two companies, and since ATI and Nvidia are such fierce competitors, it's a safe bet that the two are roughly equal here.

Memory: Looks like a tie, but Sony may take a slight hit here. The Xbox 360 will come with 512MB of GDDR (graphics double data rate memory, meant for handling graphics-intensive programs like games). The PS3 will come with 256MB of 700MHz GDDR 3 memory and 256MB of XDR memory. Bob Merritt of Semico Research says it's safe to assume that both types of memory will sell for a 100 percent premium over conventional DDR2 memory in 2006, dropping to a 50 percent premium the following year. A 256-megabit DDR2 chip sells for about $2.46 on the wholesale market, he said, leading to a price of about $79 for 512MB of GDDR (here's the math: 2.46x2x2x8; there are eight bits in a byte).

iSuppli and Merrill Lynch put the cost of memory at, respectively, $65 and $50. The average between the three is $65.

In a twist, Samsung will make memory for both consoles.

Hard drive: The $399 version of the Xbox 360 comes with a detachable 20GB hard drive. Sony will include a detachable drive but hasn't set specifications. So again, it's a draw. On the wholesale market, the drives go for about $40.

Everything else: The power supply, the chassis, the wireless components--all of these parts will come from the same (or similarly situated) competitors in China and Taiwan and will cost the same. The "other" category of parts comes to about $165, according to iSuppli and $100 according to Merrill Lynch. Let's average that out to $130.

Total: If you use the low-end figures for Cell ($150) and the Blu-ray drive ($200), the PS3 materials bill comes to $700. The high estimate, including a $230 chip and $300 drive, comes to $880. The average is $790. The Xbox 360, meanwhile, comes in at $476 through averaging prices from different analysts. A study from iSuppli puts the figure at $525.

363 Comments

  • thethnktnk

    Posted Mar 4, 2006 1:06 pm PT

    As long as game companies don't start increasing the cost of PC titles, I'll be happy.

  • casmar82

    Posted Mar 2, 2006 11:50 am PT

    I want to get a PS3 but I will just wait till the price tag drops, if they do put a price tag of $400 or less we will see Sony lose around 1.2 billion per 1 million console in 3 different regions Japan,U.S., and Europe. This will make them break into deep S**t and eventually lose, and if they do release it for 700 or more well no one will buy, unless you have money to spend on a console that has the price tag of a pc. Until then the 360 will have a bunch of games out and eventually people will switch over. Plus I also heard that they will encode them so u can't play used games on the system... that sucks @$$. Until this gets settle I will just keep playing on my 360.

  • Arkham

    Posted Mar 2, 2006 7:25 am PT

    CommandoVader13 said: "**** This im getting a Xbox360 instead. I dont want to pay almost $900 for a PS3. Xbox 360 is cheaper and is going to have Halo3" -------- That guesstimate of "$900" is of the actual COST of the hardware, not the MSRP PRICE for the consumer. The 360 "costs" around 700, but sells for 400. Get it? Big difference.

  • rocco0907

    Posted Mar 2, 2006 1:53 am PT

    I would buy a PS3 even though it would cost and arm and a leg......because i would put it it on ebay.....if it is around 800 bucks.....can you say cha ching!!! specially if you sell it for 3x the cost.

  • CommandoVader13

    Posted Mar 1, 2006 7:51 pm PT

    **** This im getting a Xbox360 instead. I dont want to pay almost $900 for a PS3. Xbox 360 is cheaper and is going to have Halo3

  • CorinneQ

    Posted Mar 1, 2006 5:11 pm PT

    So you expect me to pay for a $300 or more system, including the new price of $10 more for games? Seems like Nintendo is going to have nice sales I believe. That or people better take off their pop up blocker and start signing up for those free systems. Nor rich or poor, I have no such money to waste for something that offers little.

  • chuck10000

    Posted Mar 1, 2006 4:52 pm PT

    too much money, too much money

  • rezapoc

    Posted Mar 1, 2006 4:16 pm PT

    To be honest this is proof that microsoft was right to stick with dvd.
    Image the extra cost there would be.
    HD dvd is overated anyway as the existing dvds run at a high resolution to fit pc monitors already.

  • GriffinPeTer

    Posted Mar 1, 2006 3:10 pm PT

    I want to pay as much as I can!

  • jaredcrazy3232

    Posted Mar 1, 2006 9:41 am PT

    look in canada when the xbox360 came out the prices were what was set by microsoft, but after they sold out then got restocked and retailed for over $1000 cnd!!!!! that probly will happen with the ps3 unless sony can keep em in stock. so i a gonna wait till the price drops then im getten the ps3.... o ya and the ps2 launch prices were exactly as sony said, i got mine for $600 cnd new 1 month after North american launch. so my guess is lauch prices will be what sony sais. so wait for em to drop or get em 1 minute after launch an o ya PRE ORDER!!!!!

  • white_flash444

    Posted Mar 1, 2006 8:45 am PT

    Sony wants way too badly to compete with microsoft. Sony will lose the most money per system no doubt. Sony loves to try to copy Nintendo as well. All of these disadvantages that sony has will have them end up doing the worst with the new gen systems. Microsoft launched too early with overheating problems and supply problems. They will do the next worse. Nintendo is going to own everything. Cheapest system, new technologies, and there the old dogs here...they know more about videogames than microsoft and sony combined. ALL HAIL NINTENDO!!!!!!!!!!!!

  • drangel_jam

    Posted Mar 1, 2006 7:57 am PT

    benjamims

  • dfdragon

    Posted Mar 1, 2006 6:45 am PT

    Nahh Screw it, i'll probably still buy it.

  • GigaDestroyer

    Posted Mar 1, 2006 1:09 am PT

    Yeah I sort of guessed it would be expensive but hey who cares right??

  • yanks43215

    Posted Feb 28, 2006 9:19 pm PT

    wow thats gonna be a lot of money

  • yaa

    Posted Feb 28, 2006 7:03 pm PT

    to expensive. Unless you want this instead of a computer. Problem is rev vontroller will own if it launches w. a good counter-strike like fps. ps3 will do fine it might have a bad launch but they have a large fan base. Just give it time.And hope for the new metal gear and that there are no launch problems

  • stallionpt3

    Posted Feb 28, 2006 5:43 pm PT

    if I wanted to buy a nice dvd player then I would consider a ps3, what do dvds have to do with gaming anyway?!!

  • epain

    Posted Feb 28, 2006 5:06 pm PT

    This thing better have a cup holder, a drink despenser, a TV that comes with it, and a few girls to go along...

  • mycat

    Posted Feb 28, 2006 2:27 pm PT

    People are calling XBOX360 the new Dreamcast. Maybe they should call PS3 the new 3DO's (launch MSRP => $699). Hope this monster could do better graphics than 'Toy Story', like the PS2 (and do the dishes, who knows!)

  • flutefreak7

    Posted Feb 28, 2006 11:52 am PT

    I'm skepticle of Sony's new system ... too much new unperfected hardware at once tends to create a buggy system ... I follow technology enough that it seems weird I haven't heard of Blu Ray before PS3 ... That and this article kinda makes the point that all the money the companies invest in their graphics and processing has to be financially redeemed and supported by good games...something that the game companies are doing less and less of...The performance, compatibility, and ergonomics of the system are overshadowing the creativity behind the games which supports the high end technology in the first place.

  • miggidy24

    Posted Feb 28, 2006 11:24 am PT

    Kboy,

    That's a good point.
    Nintendo's still in control of the portable market even though PSP is a much more capable piece of hardware.

    I had the feeling that Nintendo might surprise everyone with the Revolution.
    A large majority of Xbox 360 owners are looking into buying the Revolution as their second console of choice. And a lot of future PS3 owners are already looking into purchasing the Revolution as their PS3 alternative.
    It's a win win situation for Nintendo since their fans will already be looking to buy a revolution anyways. Not to mention the less fortunate gamers whom their only next gen console choice is the cheapest of the bunch.
    The Revolution....

  • miggidy24

    Posted Feb 28, 2006 11:13 am PT

    Arkham, what are you talking about?
    I'm only pointing out the obvious.
    Sony promised a Spring 06 release, everyone jumped the gun thinking this thing was going to hit the US in that time frame.
    Sony was referring to a Japanese launch.

    And of coarse I know Sony will reveal info on the PS3 right before E3, during E3, and after E3.
    The point I was trying to get across is that the PS3's Spring Japanese launch is going to get pushed back.
    The question I ask now is, will this have an impact on an "expected" Fall 06 American launch?
    E3 will give us a clear indication whether the American launch is on track.
    If Sony doesn't have anything playable on the floor then this X-mas will only see the Revolution as the new next gen console on the block....

  • vagrantrocklee

    Posted Feb 28, 2006 10:47 am PT

    This is going to be one back-breaking year of work,JEJEJE I just hope the everyones piggy-jar holds a lot of pennys.

  • anamnawshad

    Posted Feb 28, 2006 9:15 am PT

    Everything else than the Blue-Ray drive and Cell is almost same at 360. Cell might be a great advantage for PS-3 over 360. But is the B-R drive necessary? DVD is enough for gaming why is Sony increasing the price and loss by B-R drive? Instead of using B-R they could have used more ram or lower the price.

  • Octagon

    Posted Feb 28, 2006 8:45 am PT

    i am not paying $500 for a system that has $70 games. I would own all the 360 games if they cost $20-$25 (which is why the retailers get to cleanup in profit land with used games).

    Companies hear me (and others): we would spend more money overall if games were cheaper. I spend less money overall and less time with the system the more the games cost. American consumers learned to expect DVDs for $20, and once they started buying a lot, spending $20 on an item became easier, because it could be compared to buying a movie. Games still feel expensive (despite any arguements to value/time/etc). A $20 launch tag won't save a bad game, but it will turn a hit candidate into a hit.

  • hella_good

    Posted Feb 28, 2006 8:00 am PT

    Ouch. Sony should try to remain tight-lipped about its manufacturing costs. A lot of people, including myself, were skeptical about paying $399 for a premium 360. Now, with the knowledge that microsoft is actaully losing $150 plus per system, I'm beginning to re-think my position that 360's are a little expensive. With Sony's production cost per system topping out at nearly $1000, the high possibility of a $500 to $700 dollar retail price is beginning to put the 360's price into perspective for me. If these speculations turn out to be true, the 360 will begin to look like a f'n STEAL. This may actually boost demand a little for the 360. Even though all of this is just speculation, it will be interesting to see how Sony handles this one. I still have faith that they'll find some kind of way to pull it off.

  • lledai

    Posted Feb 28, 2006 6:23 am PT

    I think nintendo has a better strategy, microsoft and sony are going very high tech and expensive, but games will just be shinier, and nintendo knowing it cant compete is making an affordable console concentrating on gameplay.

    You have to be hardcore to pay $400 and up to get started, and if nintendo sells its console at $150-$200 Parents (who aren't hardcore gamers) will see it the viable option.

    Thats my two cents.

  • thefjk

    Posted Feb 28, 2006 3:56 am PT

    I'll get a PS3 no matter what! Seems to me that SONY has some wonderful tricks up his sleeve, so am counting on it!

  • abelmaestro

    Posted Feb 28, 2006 3:26 am PT

    more expensive =more quality ,the PS3 has the most advanced technology aviable ,for the firsat time Playstation will be the most powerful system you know hwat that means bye bye bill gay and the other gay owner of nintendo hehehe

  • PR3D4TOR2

    Posted Feb 28, 2006 2:36 am PT

    comeon buy yourself a xbox360 is way-better than PS3, xbox360 is better in all things and + looks good

    Ps3 sux ? why? look it, 1st it looks like a trash can
    2nd controler !!! are we still in stone age hu hu bumberang !!!
    3th the creator it self said that xbox360 is better
    4th the games on ps3 will sux !! why? becuse it's hard to work on ps3
    5th many creators will leave PS3 in shadow
    6th creators of games saying that xbox360 is much way better in all things

    Xbox360 wins here

  • artika

    Posted Feb 27, 2006 11:00 pm PT

    http://news.com.com/In+Sonys+stumble%2C+the+ghost+of+Betamax/2100-1041_3-6043334.html?tag=nefd.top

    Very interesting read (if you have a long attention span) about BluRay stumbling. It is also an insight of why the PS3 is going to be delayed (Blu-Ray) and why pricing the PS3 may be an issue for Sony whose next-gen console will be dubbed the poor-mans Blu-Ray player. This could potentially undercut their partners (Panasonic, Samsung, etc....) and alienate them.

    Look, everyone knows that Sony is using the PS3 as the gateway to the Hi-Def DVD movie world. Sony has bet the farm with Blu-Ray and if this is the format that will prevail they stand to make billions in terms of royalties. If they fail, they would have come full circle (Betamax).

    Toshiba's HD-DVD format video quality is just as good and cost substantially less to produce, which it turn, will cost the consumer less. The first least expensive HD-DVD players will be only $499.99 as opposed to $1200 from the Blu-Ray camp. (Go to digitalbits.com if you don't believe me as they have a full Hi-Def DVD report from the 2006 CES).

    PS3 will cost between $599.99 -$699.99 retail. Less if they release the PS3 later. Early 2007!

    I have no problem waiting.

  • xbox365

    Posted Feb 27, 2006 10:16 pm PT

    The ps3 will likely cost $499.99 and they will still lose a mess load of money which is pretty sad. I remember when people before said the ps3 will cost $500 and I was like yeah right. But now as more of these articles appear I am positive that it will be atleast $499.99. Sony is pretty much screwed.

  • h2887

    Posted Feb 27, 2006 7:45 pm PT

    bbery expensive but im savin lol

  • pvtvaladez

    Posted Feb 27, 2006 6:34 pm PT

    people pay more than $900 for a computer so ps3 is not really that expenisive

  • chappellesshow2

    Posted Feb 27, 2006 6:02 pm PT

    PS3 has everything better and more expensive so its going to be way better

  • lalakool_16

    Posted Feb 27, 2006 5:13 pm PT

    w/e, I'm waiting to buy anyways

  • lalakool_16

    Posted Feb 27, 2006 5:13 pm PT

    w/e, I'm waiting to buy anyways

  • lobo1976

    Posted Feb 27, 2006 3:56 pm PT

    If you consider the cost of a normal Computer these days its not that bad because as you see all the components and what a blue ray alone costs its a bargin im looking forword to having a playstation 3 when it comes out i well wait when all the cost run there course i have a Ps 2 and i well enjoy it for years to come

  • Turegamer

    Posted Feb 27, 2006 3:25 pm PT

    That nice even if the PS3 is over 900 dollars I'll just wait for the price to fall like how I waited for PS2 when it came out those year go.

  • kboy23

    Posted Feb 27, 2006 1:57 pm PT

    Nintendo already cashed in on there portables they have a big boost thanks to the nintendo ds. They just have to sit back and pull the button on THE INEXSPENSIVE REVOLUTION and its really small like the mac mini and the slim ps2.... but i love macs.

  • jmegasite

    Posted Feb 27, 2006 1:54 pm PT

    I'm a Sony, Nintendo, and Microsoft fan all together, but Sony I will have to say this is ridiculous. If Sony will think, they would figure out if they sold the consoles for a cheaper price then they would be able to sell more PS3's. If they do that they will make up the money that it cost to make the PS3 in no time. Just thinking about the PS3 costing $500+ makes my head hurt. It would probably take years for the price to go down to $300. By the time the price goes down that low, what next? The PS4????

  • kboy23

    Posted Feb 27, 2006 1:53 pm PT

    YEAH

    I thought i would have to dig REALLY DEEP in my pocket.

  • theragu40

    Posted Feb 27, 2006 1:49 pm PT

    Umm...Nintendo is making money on each console they sell. Just thought I'd throw that out there.

  • morpheyous

    Posted Feb 27, 2006 1:39 pm PT

    I predict the PS3 will cost 25 dollars
    do you realize how many they would sell?

    take that XBOX!!!!

  • The_Fat_Zebra

    Posted Feb 27, 2006 12:35 pm PT

    At least the ps3 is truly next gen and not just a dvd player with some extra ram.

  • ironside20

    Posted Feb 27, 2006 12:18 pm PT

    the people at Sony don't care about us in north America, they only care about japan. they are going to take their sweet time releasing it outside japan. they also dont care about china and that is the largest emerging market.

  • gill9221

    Posted Feb 27, 2006 11:57 am PT

    I'm not paying any more than $250 for a game system while I'm still in college. Goodbye ps3, xbox 360, helloooooo Revolution

  • man_diesel789

    Posted Feb 27, 2006 11:47 am PT

    good bye ps3 hello xbox 360

  • Keivz_basic

    Posted Feb 27, 2006 11:44 am PT

    I haven't owned a console since the Sega Saturn. If this thing costs $399 at launch, I'll even buy one.

  • timts

    Posted Feb 27, 2006 11:20 am PT

    I dont think $ONY has that much cash to burn right now. they will have to sell a lot consoles to make games profitable, at the same time, I dont think they can afford to sell that many units, at the same time, if they sell it cheap, people might buy ps3 to use as BD to watch HD movies only, make them lose even more money. I heard BD unit which connects to TV directly is estimated to be $1000 each.

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