PlayStation 3 may face delays due to production costs

Posted by Scott M. Fulton, III

Foster City (CA) - Yesterday, the Taipei-based electronics news service DigiTimes reported that it had received indications from a Sony spokesperson that the company may be delaying shipments of its PlayStation 3 game console from this spring, when it was initially expected, until at least August.

The spokesperson apparently indicated to DigiTimes that Sony was not pleased with the pace of progress reportedly being made by the developers of Advanced Access Content System (AACS), the sophisticated copy protection scheme being developed for Blu-ray Disc. Sony's PS3 is slated to contain a BD high-definition player as standard equipment. Although Reuters reported last week that progress was finally being made in finalizing the AACS specs, the DigiTimes report hinted that the Blu-ray Disc Association - of which Sony is a principal member - was displeased with the results so far, and may be delaying Blu-ray development as a result. Caught in the wake may be Sony's PS3, which up to this point had been expected to be the premiere vehicle for Blu-ray, especially in North America.

But PS3 shipments to North America could be delayed even later than August - perhaps as late as January 2007, according to a Financial Times report last weekend. The report cites a Merrill Lynch analyst in Japan as having completed a preliminary teardown analysis of the PS3 - albeit without the system in hand - which concluded Sony's total materials cost per unit could approach $900. According to the DigiTimes report, which cites the Merrill Lynch analysis in greater detail, Sony could be spending as much as $230 per unit just for the 3.2 GHz Cell processor that IBM plans to produce for PS3, plus $350 for the Blu-ray drive and $70 for the Nvidia RSX 550 MHz 1080p graphics processor.

It could be the excessively high cost of materials, the FT report states - not the AACS delays - that could be the principal roadblock to PS3's timely release. In the wake of this analysis, Merrill Lynch has cut its estimates of Sony's annual shipments worldwide for 2006 to between 2 and 3 million units, which may include zero units shipped to the US and Canada. By comparison, Microsoft's Xbox 360 sold 1.5 million units worldwide in the months of November and December 2005.

Last November, electronics analyst firm iSuppli performed a teardown analysis of Xbox 360 - this time, with the actual unit in hand - and concluded Microsoft spent as much as $550 per unit in materials cost alone, during the console's initial production run. That cost included a less expensive CPU than PS3's appears to be - a $106 Power 3 versus an estimated $230 Cell. But Sony may be saving money on its graphics processor, spending $70 on the Nvidia chip by Merrill's estimate, versus $141 spent by Microsoft on its ATI chip.

Curiously, the Merrill report omits the cost for PS3's included hard disk drive, which is not negligible. iSuppli's analysis of Xbox 360 concluded its HDD costs Microsoft about $60. Factor that into the picture, and Sony may actually be paying more to produce each PS3 than Apple pays to produce a Core Duo-based iMac, according to iSuppli estimates.

The FT report claims Sony will probably have more to say about its PlayStation 3 plans during the upcoming E3 Expo in Los Angeles this May. But similar words were stated prior to January's CES in Las Vegas, though Sony declined to follow up. If Sony holds tight even up to may, the negative signal it sends to the market could send shockwaves throughout the entire CE industry, especially the home entertainment division depending on a stellar premiere for Blu-ray Disc. If that happens, last year's shipment debacles concerning Xbox 360 could quickly fade into history. Sony spokespersons have yet to return TG Daily's request for comment.