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A Wal-Mart spreadsheet allegedly listing products that the company is having difficulty stocking states that the 40GB PS3 "will be replaced with [a] new model in early August." We received this sheet from an employee that's sent us solid information in the past though s/he can't confirm the origin of the note that the model will be replaced. Of course, in the eternal battle over semantics, "replaced" could simply mean some minor tweaks to the model and the addition of the DualShock 3.
For those keeping track, if the 40GB version actually ceases production it would be the third version of the PS3 to do so. Let's take a trip down memory lane: The 60GB PS3 was last seen in late 2007 roaming the plains of retail (some still speak of finding them in random places today) and the 20GB was officially declared dead in early 2007 after it went missing from retail for months. Perhaps next week's E3 will shed some light on the fate of the 40GB unit.
Update: Adjusted for the possibility that "replaced" could mean basic changes to 40GB model, like the addition of DualShock 3.