PlayStation 3 costs $800, sez Merrill Lynch mob

If there are some people out there right now who are in the know when it comes to what the hell is going on -- we mean really going on -- with Sony, it's those investment firms. But even barring their research analysts getting all kinds of privvy information from direct executive input or connections on the supply side, it's kind of funny when one of these investment firms lets loose some juicy gossip. Like that Sony's albatross PlayStation 3 is going to cost them $800 per unit at launch (they list $900, but apparently Lynch financial analysts can't add their own totals). $800 per unit? Doesn't sound unreasonable considering what Sony's trying to get under cram under the hood of this thing; Lynch calls it an "expensive and difficult-to-manufacture product" because of the Cell processor and Blu-ray drive, which account for the lion's share of the backend parts costs (see above). Granted, most of this analysis comes off as estimation and prediction, but we'd like to make a prediction of our own: the PS3? She's like Kutaragi's Spruce Goose. Oh she'll fly alright, but at what cost?

P.S. It's worth a reminder that game companies always sell these things at a loss at launch, so we shouldn't have to worry too much about ponying up about a grand for a PS3. Eh, maybe only six or seven hundred.

[Warning: PDF link]

[nosoupforyou @ Feb 18th 2006 1:01AM]

And here I was thinking I would be able to afford a PS3.

...guess not.

[delerious @ Feb 18th 2006 1:02AM]

As Sony said, "We want you to earn it."

[Henry @ Feb 18th 2006 1:04AM]

The first column only adds up to $800...

[Henry @ Feb 18th 2006 1:05AM]

Merrill Lynch has top-notch adding skills.

[Dan @ Feb 18th 2006 1:07AM]

Well, Whose with me to grab one of these outta peoples hands when they just come outta the store?

[SamT @ Feb 18th 2006 1:08AM]

There is no way they buying blu-ray drives for 350. I'm sure they have some deal in place which reduces the price for them.

[Eric Leung @ Dec 21st 2006 2:55AM]

sony was one of the developers of bluray so they just make their own, they dont even have to buy them

[Merrill Lynch @ Feb 18th 2006 1:10AM]

Sorry Folks, I cant count when my eyes are blurry, To much of those pain killers.

[bazald @ Feb 18th 2006 1:25AM]

Does that first column add up to $800, or am I crazy?

[That one guy @ Feb 18th 2006 1:28AM]

This is dubious at best. How come every industry estimate we've heard places the blu-ray drive at $100? How come it only adds up to $800? What does Merrill Lynch know about games anyway?

[nizzy1115 @ Feb 18th 2006 1:30AM]

#1 This is not how much they will sell for on the shelves in stores, its merely how much it will cost sony to make them. They will sell them at a loss to get buyers to pick it up. Microsoft's XBox costs them about the same too (well a little less) but they sell it at a loss hoping to make money on games and accessories and other services and such. Also, this price will go down greatly over the next years as it shows as the manufacturing of these products gets more mainstream and easier to produce.

[John @ Feb 18th 2006 1:33AM]

I think there is $100 manufacturing fee

[Revrant @ Feb 18th 2006 1:35AM]

Eh, doesn't mean anything, they sell these things at gigantic a loss, unlike Apple, whom sells for gigantic profit on a per-player basis.

[Blu3 @ Feb 18th 2006 1:37AM]

Hahaha... that's why you should buy Xbox 360. Sony is planning to lose roughly $3.2 billion in its first fiscal year, $1.7 in its second, and $780 million in its third. That means Sony will have 3 years to make up about $6 BILLION of loss and then make a profit. How will they profit? By charging you, the faithful consumer, a lot more money.

Sony has pushed itself too far and made the PS3 only accessible to the hardest core (and most wealthy) gamers. Bad move Sony... you will lose this round to Microsoft unless you really get it together in a hurry.

[Lerry @ Feb 18th 2006 1:37AM]

merill lynch is retarded...they cant add, they have horrible sources for the prices...how do they manage to stay in business!. the first column DOES add up to $800

[Shade @ Feb 18th 2006 1:43AM]

The most unfortunate aspect of this news is that Sony very well may have convinced itself that a $600+ console will sell well. Sony's business strategies have been less than brilliant over the past few years...

[Dave @ Feb 18th 2006 1:43AM]

My guess is that they used to have the hard drive booked as $100, but due to recent documents showing that a hard drive wouldn't be included, they switched it to NA, and forgot to reduce the total $100. Insane price for a game machine laden with DRM from the company that showed no remorse for rooting their customers.

I'll pass.

[ScottE @ Feb 18th 2006 1:51AM]

Got Root?

[John @ Feb 18th 2006 2:09AM]

it's obviously a fake, probably an M$ plant

a 3.2GHz PPC, 4 front USB ports (for controllers?),
never gonna happen

[JJMorton @ Feb 18th 2006 2:18AM]

>>Got Root?

Do losers go around trolling the web for any topic remotely related to Sony to talk about Rootkit, no matter how irrelevent or off-topic it may be? Go back to Slashdot to toss some salads.

[Desides @ Feb 18th 2006 2:19AM]

"If there are some people out there right now who are in the know when it comes to what the hell is going on -- we mean really going on -- with Sony, it's those investment firms."

This is the dumbest thing I have ever read on Engadget, counting even the comments section.

[Ken @ Feb 18th 2006 2:21AM]

don't you imagine how all these parts must be attached together? or just a box within card, memory and bluray? :))
so +100 for the case and motherboard.

but... anyway. the 900 price tag seems to be very puffy

[Steve @ Feb 18th 2006 2:21AM]

I'm having flashbacks to the Neo Geo. Tremendous technology (at least for the time) at an obnoxiously high premium. The Neo Geo became a cult favorite -- at least for a short time. I don't think that Sony's console department will survive the same status (there isn't an arcade market to maintain them, unlike the Neo Geo).

[Kyran @ Feb 18th 2006 2:49AM]

Well I skimmed over that PDF and it mentioned nothing about where that extra hundred dollars came from.

While the cost to manufacture a full fledged Blu-ray player is currently quite high, the PS3 won't be using all the components that go into a stand-alone player because the Cell proc would be more than sufficient to decode H.264 in software; let alone the other supported codecs. A cost of $100 just for that one component is asinine as it is, let alone $350.

So....

If we subtract $100 from the total (because their math sucks) and another $250 from the blu-ray drive cost to bring it in line with everyone else's estimates, that would come to a total of $550. That's still extremely high for a console, but at least *that* could be sold at more competitive prices if they want to take losses as heavy as that compared to MS's consoles. Of course those are just for the parts. If we factor labor and distribution in there and it'll likely shoot right back up to $900 a unit anyway. :P

Seriously though, Sony is demonstrating a severe lack of restraint with this product, says I.

[distantbody @ Feb 18th 2006 2:58AM]

/
I, like every other sony fan, hate to death that we have to wait so long for our next console fix. It fucking kills me...
/
When you engadget writers and immature PS3 obsesives constantly talk about how the ps3 will be a complete failure tho, its bullshit.
/
Thats just i-want-my-new-toy-NOW-NOW-NOW! talk
/
The Sony company laughs at you.
/
We know Sony will make a succesful console.
/
And the people who talk that PS3-complete-failure crap will go along on launch day and pic up their console, just like everyone else.

[Chris @ Feb 18th 2006 3:11AM]

man this speculation with the ps3 is getting almost as bad as when revolution controller was waiting to be shown. As in Nintendo's case, a little bit of silence doesnt mean doom

[totalundone @ Feb 18th 2006 3:15AM]

I'm still skeptical on the whole bluray drive. Haven't their been interviews with developers (the few there are so far) and they say that they're developing their games to fit on a Dual Layer DVD?

If Bluray is such a certainty, then why are they limiting themselves to a DL DVD?

[idiots... @ Feb 18th 2006 3:24AM]

The only thing worse here than M-L's estimate of the price of the PS3 this year is their estimate of it in 3 years.

Let's start from this year.

$230 seems high for just the CPU. I couldn't say how much, but I can say that Sony wouldn't even bother to make their console if the CPU cost half over half of the expected selling price.

The Blu-Ray drive price is WAY too high. Philips is going to ship a Blu-Ray writer drive for $500 in May. That's $500, retail. That includes retail markup, and cost of shipping to retailer. Also, Philips pays Blu-Ray license fees to produce units and Sony doesn't. And did I mention the Philips writes and the PS3 only has to read? And I can buy a quality DVD-Writer for under $40 retail right now. A Blu-Ray reader drive is a little different, but not a lot. It cannot cost much over $100, and it'll be well below that by fall, when the PS3 production ramps up (or perhaps just begins in earnest, I dunno).

6 USB ports? It will not have that many. 4 tops (2 front, 2 back). And the connector cost seems high, I'd say $3 today for USB ports, maybe $2.

For 802.11g and ethernet, Sony is using IP from Marvell that is normally used as an 802.11 access point. So it has all 3 ethernet ports and the 802.11g (and an ethernet hub) in a single chip (or less, see below). I'd say $5 for the ethernet and 802.11g together, maybe a bit more if they really leave 3 connectors on the back.

If the $100 was for a hard drive, they're the dumbest people alive. I can get a 40GB 2.5" drive for well under $100 retail. The OEM price cannot be over $50, and they could always go to under 40GB if it saves money. I'll just assume they added wrong.

I think also M-L doesn't understand that when you make a custom chip you can put a lot of stuff on it. The link (brains) for the USB, 802.11 and ethernet are probably on the main chip in the unit, bringing the cost of them down to nearly free. The 802.11 PHY/radio will probably be a separate chip, but the USB PHY is certainly on board, maybe the gigE one too.

So M-L is well over the initial price here.

Now, let's look at the future prices.

$100 for an OEM Blu-Ray reader in 3 years? Unpossible. Blu-Ray would have to be the biggest flop in the world for this to happen. My guess is you'll be able to buy a Blu-Ray writer drive for less than $60 in 3 years at retail. Look at how DVD writer prices collapsed. Readers will probably be under $40 retail. OEM prices for either will be even lower. And again, Sony doesn't have to pay license fees, so that lowers their prices even further.

$60 for the main chip in 3 years seem high too. It'll be on 65nm or lower then, yields will be way up, chip size down, and they might even combine chips (like the GS and EE were combined into a single chip on PS2 in under 3 years). I couldn't say how high though. Maybe it'll be $50, but include the functions of some of the other chips in it.

$30 for 512MB of RAM 3 years from now. Seriously? That's way off. GDDR3 will not be special anymore, and Sony won't be paying much premium for XDR, since they'll have enough volume to make a market in it. Right now you can get 32M of mobile SDRAM for $4 in big quantities, 64M of mobile SDRAM for $5. And I'm to think 512MB of commodity RAM will be $30 in 3 years? Nope.

Again, they don't know the PS3 uses a single set of IP for Ethernet and WiFi, $7 between the two 3 years from now is way too high. I'd say $2 for the PHYs, links will certainly be on with another chip.

$5 for Bluetooth in 3 years? It won't drop at all? Smooth move.

These companies stink at estimating parts costs. Just remember, these are stock brokers, not engineers, not parts buyers. They just don't have any clue at all.

[A. VanAtta @ Feb 18th 2006 3:25AM]

Well, this is another waste-of-money video game system for brok college kids and frazzled parents to blow money on... But not me.. I weened myself off the vidoe games back wen I was in 8th/9th grade. (Back then Nintendo 64 was state-of-the-art if that indicates my age any...) I cannot even fathom how people can affor these video game systems and accessories today, much less at 500-1000 dollars... Oh well...

[andrew @ Feb 18th 2006 3:35AM]

PS 3 the best,i lke this player very future. what the price now ??

[Phil @ Feb 18th 2006 3:44AM]

This is what I think will happen:

Sony will delay the PS3 until they can sell it for under $300 USD. Meanwhile the XBox360 will continue selling modestly.

Then the PS3 will ship.

It will play Playstation 1 and 2 games flawlessly WITHOUT a hard drive, and the XBox360's severely limited and hard-drive-needing backward compatibility will look even worse than it does now.

It will have BluRay, and people with HD screens will drop their jaws when they see how much better high-def movies look on their HD screens and how much more rich content can be fit on the BluRay game discs. Even people who can't afford HD screens will want the PS3 immediately and start saving up for HD screens.

It will have a much healthier set of highdef launch titles than XBox360 - these titles will be so good that even with the PS1/PS2 compatibility people will still pay for many new PS3 titles. BluRay movies will also sell well after a few million people decide to try them out on their PS3's with HDscreens.

Sony will eventually own the console world again, but I have a feeling that none of this will come to pass in 2006, but the PS3 will be outselling the XBox360 by 4 to 1 by November/December 2007.

[Neal @ Feb 18th 2006 4:08AM]

Isn't game companies except Nintendo always sell these at a loss?

[Revrant @ Feb 18th 2006 4:36AM]

Smooch smooch smooch, Phil, smooch smooch smooch.

None of the Sony console launch titles have been good, and this one probably won't change that, most people do NOT have Plasma or HDTVs, thus I severely doubt all the hubbub about High Def will affect the majority, not in the slightest.

There's no way in hell Sony will sell this for under 300 dollars, regardless of six months to over a year, and by the time they get the thing out(2007, it looks like) Microsoft will be in the deep profit zone, allowing them to slash prices on the X360 when the PS3 launches, and maybe even launch Halo 3 in 2007 alongside the PS3. A plain, but effective strategy, which anyone could see, and Microsoft itself has hinted at.

I'm not saying Sony won't come out for the better, Sony has far too many Fangirls(Both sexes) for the PS3 to falter, they'll come out on top, I do believe, however, this will be a much, much tighter game than the last round.

Though I must reiterate, they will sell the PS3 at a loss, and then as many others have said, the estimates here don't mean a damned thing. They don't take into account everything, and try to sum it up at face value, which is ineffective.

[MrTroy @ Feb 18th 2006 4:46AM]

Phil I'm going to hold you to that. And if Sony isn't beating Microsoft 4 to 1 you owe me a beer.

One thing I want to point out about the difference between BluRay and DVD... thing about when consumer level writers came out how much they were and how quickly they dropped in price.

Now think about the quality of Consumer DVD burners. You can buy a $80 DVD burner and burn a DVD... 4 months later it no longer works. That's absolutely fantastic for archiving.

One thing we have to be aware of unfortunately, is how much of a rush this BluRay technology is getting. It's jumping straight to the consumer at a very low price? There's going to be some kinda catch. DVD players when the first came out were lik 2 grand and up.

You mean to tell me that you honestly believe new technology is gonna come out and be less than $600, while also making only a messly little $200 loss? I think not. I think the PS3 is going to be a very low grade of BluRay. Don't get me wrong it may play movies quite awsome, but the costs aren't going to add up and paying an extra $10 for a movie/game isn't going to cover the costs.

[Tamyu @ Feb 18th 2006 4:53AM]

I think what a lot of people are forgetting - in regards to the PS3 comparing to the X360 - is that the main market isn`t necessarily the US. I certainly can`t imagine Halo winning over anyone when the PS3 comes out. And if the PS3 is the choice of Japanese gamers, Japanese game companies will make more games for it. That`s business. And more games produced in Japan for one console gives it an edge in the US, regardless of the price or quality of the console itself.
Personally, I don`t really care which console comes out on top. I will buy whichever has the games I want. But at this point, being as I live in Japan, and play Japanese games almost exclusively, that will most likely be the PS3. I mean, although the X360 has been out for a bit, I still don`t see any games I want even being announced for it. Why? Because it just didn`t sell here. That discourages me and most everyone I know from even taking it seriously. Just like with the original Xbox - I think more than half sold in Japan sold for one single game, and that was pretty much it.

As for the price tag - you people underestimate the amount of money Japanese gamers are willing to put out to own a console. 5 or 600? Not that bad. I mean, PS2 games already cost close to $70 at launch, and that certainly doesn`t make anyone bat an eye. And being as a far higher number of people in Japan own HDTVs, well, that *does* make a difference here.

Of course, that`s the Japanese market, and not the US. What appeals to gamers here is signifigantly different than what appeals to US gamers. It`s just the way things are.

[Adam @ Feb 18th 2006 5:30AM]

I loved the comment that said "This is obviously a M$ plant" Thats funny if it were a joke...but if you ment it...kill yourself.

Also, I enjoyed these comments far more than I did the comments on Digg.com Some of those guys need to try heterosexuality sometime...

I myself am waiting for the new commodore 64 to come out. I want the wireless one.....with the blue LEDs....and the deathstar....hmmmmmmm deathstar ::drool::

[Karl Viklund @ Feb 18th 2006 5:35AM]

# $70 for a game is just totaly ridiculous.

I think it's just too much hype around this PS3 and that's the case why Sony is so quite about it. I think that the PS3 will cost alot and that Sony will go back alot on each console what that tech they are putting into the PS3. When PS3 hits the market, Xbox 360 will be very cheap and the developers will know how to take more advantage of the Xbox 360's hardware. PS3 is just so much about the hype and Sony will try to keep it like that by beeing quite until the end.

[Brian Chambers @ Feb 18th 2006 6:08AM]

While the second column is correct, the first column only adds to $800.

So is this Merrill Lynch's miscalculation or is it just a fake table?

[Albertson's bagboy @ Feb 18th 2006 6:13AM]

There's to much emphasis on the cost of the PS3 console itself. I'm not sure if it's ben announced that the console will work on standard television sets, but I think it wont, being that it is Blu-Ray. That's because all movies studios require all next-gen(HD) disc players to output through HDMI. All this to prevent piracy of their movies. Unless that is Sony does something with their drvies that let standard DVDs and games to output through normal component so that it can be viewed on standard sets and Blu-Ray movie discs to output only through the secure HDMI connectors. So if that is true, then for those people without monitors that offer HDMI input we have to factor in the additional cost of a new HD-set with HDMI input. So estimate a PS3 with (guessing $500) and a decent HD-set (about $2000), then you have to spend about $2500 just to use a PS3, if that is HDMI output only.

I think that's why Microsoft opted to leave out the new HD drives. That way they can provide HD quality without alienating those that have sets without HDMI input.

Then there's Nintendo...I love their products, but what the heck is up with the no HD output. I think it would be best to leave that up to the customers. Sure it'll cut cost but I think I see their strategy. Just like they did with the Gamecube not supporting DVD movie playback and then later having Matsushita (Panasonic) to release the Q which was a Gamecube the doubled as a DVD player, I think they will try to milk us with another product that does support HD.

Well that's all just stuff that's floating in my head. We'll just have to wait till E3 for concrete info, until then let the predictions and rumors keep flying.

[yehti7 @ Feb 18th 2006 6:14AM]

Instead of complaining and whining (would you like some cheese with that whine?) start saving up. IT'S FREAKIN' FEB. PEOPLE!

If you start saving up now, and come November time frame, you might have the money to buy one. Don't give me your personal sob story. I'm talking to the vast majority of people who would be able to.

Started savin' myself. Hope it's worth it.

[Raider @ Feb 18th 2006 6:27AM]

I was also wondering about the missing $100. It's not only funny about that, but that they refer to the PS2 a few times and call it the PS3 at the same time.

"Our CY07 estimates are consistent with the year-2 ramp of the PS III, which sold 7mn in U.S. and 5.5 in Europe in 2001."

Well I didn't know that the PS III sold 7mn in the US in 2001, I wonder where I've must of been.

It just seems that not only with the amount of mistakes on this paper, that none of it can be taken as fact. Of course all of it is speculation as everything else is about this system. I would rather trust the stoner that works at Gamestop.

But you also have to take into account the licensing of not only the games, also from the Blu-Ray drives, name, etc. Also they are going to get a cut from the licensing of Cell, which are going to be used in servers by other companies.

[Product Reviews @ Feb 18th 2006 6:41AM]

Sell at a loss, just what microsoft has done but we must all agree the PS3 will be much better than the Xbox 360.
I own a 360 and will buy the PS3, looking at those specs, the Xbox 360 I have does not have built in Wi-Fi or blueray so that alone the PS3 is much better (but at what cost to us).

[Alex Cd @ Feb 18th 2006 6:51AM]

Optical drive is way pricy, that is bullshit even for an Oem drive. This is list pricing on how much it would cost to make if buying each part as 1 and not in millions at a time to get vat reductions and lower cost per part. Not to mention that a 3.2ghz ppc core does not exist, what happened to the quad core?

[Majormauser @ Feb 18th 2006 7:42AM]

Well it probably going to sell for $499

It wont have all those features.... this is just sony making things up like they always have.

Just show us some games and shut-up already.

[Lazyguy @ Feb 18th 2006 7:50AM]

I'm still skeptical on the whole bluray drive. Haven't their been interviews with developers (the few there are so far) and they say that they're developing their games to fit on a Dual Layer DVD?

If Bluray is such a certainty, then why are they limiting themselves to a DL DVD?



Why? Simple, the PS3 drive can not read fast enough to use the huge storage room. This causes a serious problem with making that room used for anything other than storing videos.

Also, the storage bluray provides is simply not necessary in this generation. The format was thrown in simply to help support Sony's format in the upcoming format wars.

[Paresh @ Feb 18th 2006 8:02AM]

I dare Engadget and Joystiq NOT to post news about the PS3 for a week.

Is a week a really long time in the tech world?

Also, release ps3fanboy.com already =)

[David @ Feb 18th 2006 8:06AM]

First, don't discount what M-L says. These guys are paid to do exactly this. They know the business on both sides. So, the estimates may not be exact, but rest assured, the y are close.

Regarding the CPU cost and Blu-ray drive costs. Whereas the actual physical parts may only cost a small amount, since they are both new technologies, there is a premium added to them for Research and Development recoupment. Especially the Cell Processor, which will probably have a lower wafer yield for a while until IBM perfects the process. Look at initial processor prices from Intel and AMD when they hit the market. They don't just inflate the price for huge profit - they inflate the price to recoup R&D costs. That's why the AMD 64 FX60 costs over $1000 retail.

Finally, that "missing" $100 is probably associated with "invisible" costs such as manufacturing time, shipping and packaging and storage.

[Vben @ Feb 18th 2006 8:46AM]

>>"Finally, that "missing" $100 is probably associated with "invisible" costs such as manufacturing time, shipping and packaging and storage."

This is a BOM "Bill of Materials" cost analysis, and such invisible cost such as shipping, packaging, storage aren't considered. Also "invisible" costs for consoles don't go as high as $100 either. Fact is, this analysis is massively erroenous.

Remember, Merrill & Lynch previously said it would cost $494 to manufacter just a few months ago. They don't seem that they can keep their own stories straight.

[Vben @ Feb 18th 2006 8:52AM]

Previous Merril & Lynch cost analysis ($494):

http://www.gamespot.com/news/2005/06/28/news_6128295.html

[L @ Feb 18th 2006 9:18AM]

It is pretty embarassing that these "top-notch" analysts from a "super bulge bracket" investment bank like ML, and some are even VPs earning in the ballpark of half a million USD per annum, cannot do simple addition properly and have 230 + 70 + 350 + 50 + 5 + 5 + 5 + 5 + 80 = 900 and not 800.

These prodigies and gurus are supposed to be highly educated people with master and even doctor degrees, holding professional qualifications like CPAs and CFAs, yet don't even bother with a simple check on the accuracy on the tabulated data before publishing a research report. I mean, come on, where's the due diligence? You have a team of 7 analysts and cannot spot such an obvious error on a 7 page report? Even a 7 year old kid would suffice doing so!

That's really some first-class professionalism in a first-class investment bank link ML. No wonder GS and MS both outperform ML in the super bulge bracket.