Kutaragi refutes $1 billion PlayStation 3 hole will bring SCE to its knees

Capital E.





My maths makes that a $1 loss per unit. I can't see Sony shipping 1.18 billion PS3s. Or even 0.18billion counting the above $1billion costs.

It's not really clear how this all fits together. Pretty poor writing.

Does anyone check content before you put it on?

I dont think the capital E is really important...

As for the figures, they dont add up, but my guess is the unit cost must be $600 instead of $500. Then if they sold 12 million units in the first year (do-able), it would make sense.

My guess is yes unit cost is high, but once BD drives goes into full production, say 3 months after launch, you can knock at least $100 off the cost.

Dont they always lose money on console hardware, for the first couple of years at least.
IIRC the PS2 was sold at around a $100 loss on each system at launch.

People are also failing to grasp the idea that, should either HD-DVD or the ready-for-market Holographic storage (300GB at 160MB/sec? yes please) win the media war, the PS3's costs will be for naught. Will people still want to make games for it if the media's only used for that? And before anyone uses the UMD example, I counter with pre-recorded Minidisc. Hah!

My bad. I "proofed" it, in something of a rush, and didn't spot the numerical typo (or the cap E). Then I had to rush out of the office. Duh. 'Pologies.

Corrected to a sales figure of 399 per unit.

If by "they" you mean Sony, then yes. If you mean all console manufacturers, then no, Nintendo made the Gamecube at no loss.

$500 over the counter doesn't equate to $500 for Sony.

It say's these are just production costs. So, Sony has to package and ship the units, and then sell them to vendors, who will expect a nice profit margin for themselves so that it makes sense for them.

If these numbers are true, the losses made on PS3s are staggering to say the least.

Kutaragi is highly overstimating the buying power of consumers. If workers are lucky enough to be able to work overtime for full, that's good for them.
But he seems to be ignoring the fact that most PS2 owners haven't even got a jobs yet.

He's isolating himself from casual consumers, who make up the biggest part of the gaming industry.

First off the guys at Merrill Lynch of Japan dont know their heads from their @$$. Goldman-Sachs and Smith Barney have been tracking the price of the PS3 at $499 and after Kutaragi's last meeting with the board have gone up to $550 and $600 respectly. The original Xbox released with a hardware loss price of about $200 per system. Microsoft's idea was to flush Sony out of the market by throwing money at everyone, which of course Bill & Co. can do effectively with their deep pockets, but has not proved very successful in their Home Console venture. Sony is notorious for not losing money on any of its hardware with the exception of the recent PSP. (This is one of reasons Kutaragi criticized Sony's handheld plan, and one of the things that kept him from becoming CEO of Sony Corporation.)
Second, off the main loss for Sony is not the hardwware directly, but the R & D costs for the Cell Chip, $1.9 billion from Sony alone, ~$6 billion more from Toshiba and IBM (IBM also made a new factory specifically for this development work.) Sony Corp. has had to eat this R&D cost for the past to 2 years with no revenue to counter balance it. That is reason PS3 is being "rushed" with a 2Q 2006 release (Sony's Financials look bad and so does it stock.) Sony needs something to counter this loss, and now that Samsung and LG have been destroying their consumer electronics market the need is becoming more desperate.
Third, the primary audience for PS2 was 21-26 year old crowd the fell in love with PS1, its been six years folks, those people are now the 27-32 year old crowd in the land were $200 blue jeans are the norm. If people are paying $900+ on Ebay for a Xbox 360, do you think Sony is going selling their hardware for $399 at a loss, so some sleepless college kid can make $500 off the resale? HA HA! At worst Sony will come away breaking even on the hardware or make a small profit on it. Sony's big problem is making sure the hardware is bug free as IBM was having issues with the chip manufacturing considering the new 65 nanometer format.
Finally,Kutaragi refuting a billion dollar loss further proves the PS3 with expensive. I feel bad for the small kids that want to play with Dad's new PS3, as Im sure he'll have it chained to the entertainment and kept under lock and key.

I almost forgot. Vendors dont make profit off the system or the games. Those have small margins attached to them which vendors are usually prohibited from changing or adjusting in order to sell the item. Vendor's primary profit comes from all the accessories and other random junk they sell to with the system or force customers to buy in order to get a system. Example, peon at store "You cant buy Halo 2 were are sold out, but we do have the Halo 2 gamers pack which includes the game, strategy guide and Collectors pencil for $79.99"

I realized the PSP wasn't being compared to the DS, which happens to be doing better in Japan..... eh I'm a fanboy, might as well let it out, I see a drop in Japan's support from sony, although sony currently does hold 80% of the market in japan, I see a slow, dip from its current position, the third generation blues..... like the N64. just my cup of tea.

I somewhat think that Merryl-Lynch may be correct in their assessment. I haven't been very devout following next-gen lately. School has been taking up most of my time, but please help me out if I state something incorrectly or if I have twisted the manufacturing processes. Thanks, and now my response.


#1. Supply and demand. Why are Xbox's being resold at such a high price? Because there simply wasn't enough at launch. We still have yet to see what Sony will do definitively during the launch of the Playstation 3, if they will unleash massive quantaties of units to combat Xbox360 (which it probably would to make up for lost ground), or launch with limited hardware only to have Xbox360 continue to climb in sales because it is the only alternative available. Xbox360 is the only next-gen console on the market right now, and therefore consumers do not have the luxury of turning to an alternative. This is why they pay $900 on Ebay for the system.


#2. Losses are losses no matter how you slice it. R&D is factored into the price of the console. New features such as blue-ray technology etc. add up and are thus factored into the consoles price. The problem however is Microsoft will have a strong foothold on the market. Kutaragi mentioned there needs to be a balance between "appeal and price." I'm not so sure consumers will want to shell out more money for a system that may turn out to be marginally better than Xbox360 and therefore will not want to work extra hours for an extra feature or two if they can get all they need from the Xbox360 for a more economical price.

#3. I admit that I haven't followed the Playstation3 extraordinarily closely, but from reports the development costs to manufacture games and optical disks are higher on the PS3 than Xbox360. I could be wrong, but if this is the case then the PS3 will have an even tougher time re-gaining their massive loss with software sales. Furthermore if this turns out to be true, it is logically sound to believe that because the system will cost more and games will cost more, consumers will have less money to buy games to counteract Sony's loss. If Sony has higher manufacturing costs with their software yet attempt to remain competitive by keeping prices on par with competitors then climbing out of the red and into the black will be ever more difficult.

Please correct me wherever you can, I haven't been following next-gen developments much lately.

I've trimmed your comments to headings since my replies were getting long!


Demand is always higher at launch than at any other time in a console's lifetime. This is a simple "it's new" effect happening.

Manufacturers have to stockpile a bit in order to make enough of a product to cover launch demand. Either that or have many more production lines in place before launch than they need to maintain normal demand. The second option costs a hell of a lot more than the first. This is why most products get a staged roll-out over several months, you need to build up another stockpile to cover each launch.

There will be shortages of PS3s for each launch, I'm sure of it. The only recent launches that haven't sold out or had shortages were the Japanese launches of the two XBox machines. And I'm not touching that "why" with a bargepole!

This may not mean an inevitable rise in 360 sales, by the time PS3 launches in the US and EU, most people who desperately want a 360 or are desperate for a "next-gen" experience will have bought a 360. I can't see the current level of supply for 360s lasting until Spring, never mind Summer (which is when I expect the earliest of the US or EU launches will take place).

This will mean that the people buying PS3s will be those that held out for a PS3 or those that believe that PlayStation is the only gaming brand worth noting at all. Sure there will be the confused parent syndrome, "Timmy wants a 'playing station', but there are none. We'll get him a 'next box' - it has all the same games." However, that won't account for all of the people out there.

It;ll be interesting to see the prices of PS3s on eBay after the JP launch. That may become the new measure of how successful a launch is!


I believe the expression here is "Never underestimate the power of PlayStation" - and by that I mean the brand. At least in the EU, the PlayStation brand has a load of kudos, in the US the XBox brand is catching up and in Japan it's more or less equally split with Nintendo. That's purely on the strength of the brand, I know that games sales reflect a different picture.

That huge kudos will sell PS3s, never mind the, sure to be, huge marketing blitz, starting at CES.

You just have to look at the eBay prices for PS2 and XBox 360 to see that people will spend stupid money to get "hot" items.


Well, nobody knows what Sony pays for components except Sony and their suppliers. I'm sure those costs are covered by NDAs and can't be released to Merril Lynch. Therefore ML will just guess.

Also a lot of PS3 components will be made in Sony plants, with these the "cost" is the basic manufacturing cost plus the mark-up they would have made selling to someone else in the case of a general component. If it's a PS3 specific component there is only the basic manufacturing cost. Remember, Sony will be manufacturing the Cell and Blu-Ray drives for the PS3.

The costs of producing a Blu-Ray disc may be high compared to a DVD, but even a 300% cost comparison will make it about 30p per disk, not much cost to add on to a game that costs, say, £50. The disc costs will be far outweighed by the costs of generating the high-res assets required by the higher resolutions the 360 and PS3 will be pushing.

OK, long post, I'll leave other points to other people, who'll probably rip me to pieces as well!

I vote "Our idea is for consumers to think to themselves, 'Right, I'll work more hours and buy it'" as quote of the gaming year. It's right up there with MS's reasoning for the Windows pricing: "because people need it".

Oh, I'm from N.America, I was speaking from a North American stanspoint where Xbox is making pretty big strides. But I do agree with your post. Good point/counter point there.

I agree, the statement Kutaragi made was very bold and perhaps even egotistical. I'd rather see a humble gaming company, but I don't think there's room for that in such a competitive, cutthroat business.

When counting in the Cell's R&D budget, you have to remember that the Cell will more than pay for itself in due course due to the sheer number of applications and appliances the processor can be put into.

Thus, you cannot put Cell development as just a PS3 cost.