PS3 close to breaking even: 60% reduction in loss for game division
Sony second quarter financial results are out and there is strong evidence in the report why the company might be refusing to cut the price of the PS3. According to the report, Sony might be very close to breaking even on manufacturing cost of the PS3. Considering that the original tear-down estimate for the PS3 was $800, to break even at $399 Sony would need to work some voodoo magic.
Overall, Sony as a company took a huge plunge in profits despite strong video game and flat panel TV sales. This plunge is attributed due to the increase in value of the Yen. However, company economics aside the most interesting news was in the game division report, which indicates a reduction in its operating loss by 60 percent year-on-year.
This might reveals why the company refuses to cut the price of the PS3 this holiday season. According to the report, the 60 percent reduction in operating loss was attributed to increase in PS3 game sales and reduction in manufacturing cost of the PS3. However, after carefully studying the report it seems likely that the main factor in the huge drop in operating loss was due to PS3 manufacturing cost reductions.
The overall sales and operating revenue only increased by 10.3 percent year-on-year, only a small increase in sales due to PS3 software sales trading places with PS2 software sales. Basically, PS2 software sales dropped, but increase in PS3 software sales negated the drop.
So if the software sales just traded places between the two platforms, then the difference must lie in the PS3 manufacturing cost reduction. A drop in the PS3 price this holiday would make Sony’s goal of breaking even on the PS3 by years end impossible.
I believe Sony’s plan is to achieve parity between the selling price of the PS3 with manufacturing cost. In other words, Sony won’t drop the PS3 price until it reaches break-even manufacturing cost. This could be a very smart move for the company in the long run.
However, with fierce competition from Microsoft and Nintendo, Sony is gambling huge this holiday season. One of three scenarios could happen: Xbox 360 outsells the PS3 holiday season, PS3 and Xbox 360 sells about the same, or the PS3 outsells the Xbox 360. All we can do now is just to wait and see if Sony’s gamble pays off in the end.
Related Posts:
20 Responses to “PS3 close to breaking even: 60% reduction in loss for game division”
Leave a Reply:
You must be logged in to post a comment. Don't have an account? Register today!
October 29th, 2008
Good article.
October 29th, 2008
Indeed, but i don’t think Sonys gamble will pay off.
October 29th, 2008
wtf? nowhere does sony state they are close to breaking even, yet Mike uses his “belief” as fact.
more nonsense from the sony fanboys…
all he’s done is make unsupported speculation and you fanboys lap it up…
priceless….
October 29th, 2008
I’m still waiting for the Slim PS3….The slim PS2 came out roughly 4 years after the first PS2. So 2010 or maybe earlier for the PS3 to get a redesign.
Come Christmas, if Sony don’t drop the price, then the Wii and 360 will dominate, and let’s not forget about our little economic crisis underway, belts are tightening.
October 29th, 2008
Kev,
Where are these fanboys you speak of? I don’t see any.
You’re ridiculous.
-Arvis
October 29th, 2008
i’m sure you don’t, arvis. your head is so far up sony’s *** you can’t see anything.
the fact is; mike ferro is the raging fanboy i’m talking about.
he creates an article STATING sony is close to breaking even when even sony has made NO such claim or hint. the fact that sony’s financial outlook is grim, only underscores his inability to distinguish fact from fiction.
the fact he posts these articles as FACT with NO base in reality, underscores his fanboyism….
October 29th, 2008
Kev, you write a posting with no facts, just your opinion and then call other people fanboys? Please. Sorry, your precious little toy is getting lamer by the day in comparison to Sony’s machine. If Sony wanted to they would cut prices. They’re not as desperate as M$. There are perhaps 100 million people that have yet to buy into this generations hardware. When they do, Xbox will be the past and the PS3 will be priced just right. The shift is happening right before you eyes.
October 29th, 2008
pfreak – mike is the one who need to use facts if his headline is written that way. it’s funny you think the 360 is “lame” when it’s killing the ps3 in NA and EU and currently outselling the ps3 in japan even…. if the 360 is lame, the ps3 is worse apparently…. “if sony wanted to”? wth kind of reasoning is that? that’s pure b.s.. they still answer to shareholders….
it’s funny you keep making predictions of how well the ps3 is going to do when all of your other predictions have failed so horribly…
oh well….keep them coming…it’s funny to watch you squirm when you’re proven wrong…
October 29th, 2008
Kev,
I remember you used to make some sense, back before you took a vacation from the site. Those were the days. It’s cool that in the fantasy world you’re living in now the 360 is “killing” the PS3 in NA and EU. In the real world, the PS3 is the overall sales leader in 2008 between the two.
Maybe you should try being honest with yourself for a change. Then you might not seem so ridiculous to everyone.
-Arvis
October 29th, 2008
@ Chris,
Come on, be fair. Some of bourne’s posts are as one sided and nonsensical as kev’s, but you never pull him up on it.
October 29th, 2008
hahaha 360 beat PS3 in japan again. What is that? 6 or 7 weeks straight now?
October 29th, 2008
@pfreak
“There are perhaps 100 million people that have yet to buy into this generations hardware. When they do, Xbox will be the past and the PS3 will be priced just right.”
If Sony can’t move some consoles, the games that will make those 100 million people decide where to go won’t be on the PS3.
And those MS fanboys can put away their attach rate, too. MS needs to sell more consoles, as well, if they want to compete for exclusives. Even if a game has a chance to sell to a higher percentage of console owners, that doesn’t mean squat if there aren’t enough consoles out there.
If the PS3 is to win this generation, it needs a real kick in the butt in order to sell well this Christmas. If neither Sony or MS can push the numbers high enough to look competitive with the Wii, likely developers will move to the Wii, design games with weaker graphics and the motion control that wouldn’t move to the 360 or PS3 well, and Nintendo will end up with a lot of exclusives next year.
And, just for the record, price doesn’t put something in the past. It takes someone very rich or not very smart to buy something that’s more expensive just because they think its better because its more expensive. If the 360 (or PS3) were $50 right now, they would be no more “the past” than if either were $1000.
October 29th, 2008
@Kev,
Dude your like the biggest Xbot I’ve ever seen.
Your acting like the prospect of Sony breaking even on the PS3 is killing you.
What do you care if it breaks even or not?
Asides, I read the article I don’t see any fanboy conjecture in the article.
I also read Sony’s Game division report in the link in the article and it meshes.
It says operating loss was due to increase in PS3 software sales and reduction in cost to manfuacture PS3s.
It also says that PS2 software sales dropped, while the PS3 software sales increased.
So, suffice to say the 60% decrease in operating loss is mainly due to the reduction in PS3 manufacturing cost. Makes sense, no?
The only “belief” Mike Ferro puts in is near the end where he says he thinks the reason why Sony is not dropping price this holiday is to reach “parity” with manufacturing costs. In that other link Sony says they plan on breaking even by 08 end, so if that is still their plan then it all makes sense that dropping the price this holiday would make it harder to break even.
Where is the fanboy speculation? Anybody who is not a fanboy can even see that this all makes sense.
October 30th, 2008
Guys, its simple. Kev is justwining because he WANTS a PS3 so bad but his mommy won’t buy one until it costs less.
October 30th, 2008
Shoulda read “just whining because”
October 30th, 2008
arvis – 2008 is NOT over yet. most consoles sell in q4 due to the holidays. why don’t we wait until the END of 2008 before making such a claim.
it’s funny that when the ps3 outsold the 360 on a month-to-month, you claimed it was proof of momentum. now that the 360 has overcome the ps3′s monthly sales (again) you decide to use a yearly-do-date sales number.. pathetic…. especially when the year’s not over yet…
check NPD… the 360 has overtaken the ps3 by a sizeable margin… America is nice, but you don’t need to call it “fantasyland”.
Dirk – sorry, but until you fanboys learn how this industry works, it’s pointless explaining this..(again).
the FACT is; Sony NEVER claimed the ps3 is about to break even. no hint, no indicators, no rumor…NOTHING… but mike puts in his fanboy headline like a fact… again… fanboy journalism at it’s best…
October 30th, 2008
Kev,
“why don’t we wait until the END of 2008 before making such a claim?”
Hey, great idea man. You go first, and I’ll follow suit.
“now that the 360 has overcome the ps3’s monthly sales (again) you decide to use a yearly-do-date sales number”
At least I don’t make stuff up and (falsely) claim that the PS3 was “killing” the 360 this year. That would be just silly and unreasonable of me, wouldn’t it?
However, I do agree with your overall point about this article, I just disagree that it stems from any fanboyism. At worst Mr. Ferro simply threw in baseless conjecture to give weight to his article.
@Creepy Harry: Yeah, you’re right. But Kev and I have a nice hate/hate relationship that requires us to go head to head as frequently as possible.
Plus, with Bourne it isn’t a CONSTANT OVERBEARING MUSCLE-HEADED BARRAGE of testosterone-fueled insecurity. Every so often, Bourne is fair and reasonable, more like CAD than Kev.
-Arvis
October 30th, 2008
@Kev,
Ah, straight out of the “idiot’s guide to Xbox 360 fanboy” article:
- If presented with facts ignore it all and focus in on a meaningless aspect and angrily argue that point, ignoring everything else.
- Mike says Sony is close to breaking even: 60% reduction in operating loss for Playstation division.
So are you saying Sony is far from breaking even? Since considering everything else has been the same since last year (profits) yet the operating loss decreased by 60%, doesn’t that mean Sony is in fact closer to breaking even than last year?
In the financial reports, Sony even notes that the huge decrease in operating loss was due to reduction in PS3 manufacturing costs – Sounds like they are close to breaking even, it could be a year or two later but they are closer then befor thats a fact.
So, I honestly have no clue what you are complaining and whining like a little baby about? Because Mike says that Sony is close to breaking even?
I guess you want it to read like: Sony is further away then before on breaking even on the PS3.
Which makes no sense, considering we all know Sony has been hard at working reducing the cost of everything just to break even.
Think before you speak man, say what it is on your mind like:
I want them to be far from succeeding!
Kev: I don’t want Sony to be close to breaking even
Basically thats what it looks like your saying.
October 30th, 2008
Why is FERRO posting dribble like this? If he reads other gaming websites (which I know he does, as he copies and pastes), he would know that analysists etc are saying that the PS3 will never break even in this lifetime.
October 31st, 2008
Harry,
“Analysts” are saying that? Which ones? Where? I thought that was just Howard Stringer using hyperbole to get a point across…
-Arvis