PS3 hardware and manufacturing cost estimated at $840

El Segundo (CA) - Market research firm iSuppli has taken apart two of the first available PS3s and found that - not surprisingly - Sony may spend far more on manufacturing the game consoles than the retail price may suggest. The company is estimated to spend about $840 to build and manufacture the 60 GB model.

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Despite the fact that the Playstation 3 is priced significantly higher than any other game console before, the company continues the tradition to introduce the device below manufacturing cost and hope to get into the black through decreasing hardware costs over time and game sales.

According to iSuppli, Sony could spend $840.35 to purchase and assemble the hardware for the 60 GB Playstation 3 and $805.85 for the 20 GB model during the fourth quarter of this year. These numbers compare to retail prices of $600 for the 60 GB version and $500 for the 20 GB PS3 and reflect premiums of 40 and 61%, respectively. The manufacturing cost does not include shipping, a share for the retailer who actually sells the device and marketing cost, which typically are in the range of 5 to 10% of revenues.

Pricing a game console well below the retail price is not unusual ; however, Sony is subsidizing the PS3 console more aggressively than it has been the case with other devices before. For example, Microsoft was estimated to spend $552 on manufacturing its Xbox 360 last year ($323 this year), which translated into an initial premium of $152 or $38% over the $400 retail price. The PS3’s premium is 58% higher for the 60 GB model and even 103% higher for the 20 GB version.

However, iSuppli concluded, Sony is delivering "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," said iSuppli’s Andrew Rassweiler. "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." Some of the more advanced features of the PlayStation 3’s design include dual graphics processing units (RSX Reality Synthesizer from Nvidia and the Emotion engine from Toshiba), the Cell microprocessor as well as XDR memory.

iSuppli estimates that Nvidia’s GPU accounts for about 12% of the materials and manufacturing costs of the PS3, Toshiba for 11% and IBM’s Cell processor four another 11%. The use of four 512 Mbit XDR memory devices built by Samsung and Elpida brings in another 11%, the firm estimates. Rassweiler also found a 400 watt power supply, which is estimated to cost Sony about $38.

"To give an example of how cutting-edge the design is, in the entire history of the iSuppli Teardown Analysis team, we have seen only three semiconductors with 1,200 or more pins. The Playstation 3 has three such semiconductors all by itself," Rassweiler noted. "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."

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