
PS4 costs $381 to build in teardown – only $18 less than retail price - sc90
http://allthingsd.com/20131119/teardown-shows-sonys-playstation-4-costs-381-to-build/
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crazygringo
> _That is only $18 shy of the PS4’s $399 retail price, leaving Sony little
> profit margin on the sale of the device itself._

Wait, the retailer takes a significant cut too. They're not selling these
things for free. Sony doesn't receive the full retail price, so Sony can't
have "little profit margin", they're definitely selling them at a significant
loss. Or am I missing something?

~~~
wmeredith
You're not missing anything. The gaming console market has almost always been
driven by a give away the camera and sell the film type of business model.
They'll make their money on games and dev licensing once the installed user
base is big.

~~~
Anonymous8202
Yep, this is par for the course when it comes to gaming consoles. Although the
PS3 sold at a lose during launch, does anyone know the profit margins nearing
the end of the console's life? Surely hardware gets cheaper and the
manufacturing process gets more refined as time goes on, so I'm curious to
know how much the same technology costs to produce now, compared to day one.
Anyone know the numbers?

~~~
wiremine
> does anyone know the profit margins nearing the end of the console's life

Came here to ask the same question. I'm curious what the final P&L was for the
PS3 console (not software/licenses), over its entire run to-date.

~~~
Tloewald
AFAIK the only bits of Sony making money right now (well, prior to the PS4
launch) are the content (music/movies) and insurance businesses. So my guess
is the PS3 has been a net loss for Sony (unlike the PSX and PS2).

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joosters
"Such thin gross margins on a consumer electronics product are rare"

For games consoles, it's extremely common for them to be sold at a loss.
(Nintendo used to be the exception)

~~~
wmeredith
Exactly. Whoever wrote this article doesn't know much about the console gaming
business.

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kibwen
Hell, Sony execs ought to be _fly-me-to-the-moon ecstatic_ if the PS4 actually
costs less to manufacture than its retail price. Let's not forget that it was
estimated that the initial run of the PS3 was sold at a loss of up to _$300
per unit_ :

[http://www.edge-online.com/news/isuppli-60gb-
ps3-costs-840-p...](http://www.edge-online.com/news/isuppli-60gb-
ps3-costs-840-produce/)

 _" Electronics supply chain researcher iSuppli’s analysis showed that Sony
loses $306.85 per 20GB hard-drive equipped PS3 sold, not including packaging,
controller or cables. The amount is greater than the loss incurred from the
60GB model, which has a $241.35 difference between the cost and retail
price."_

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georgemcbay
As other posts have mentioned, Sony is certainly taking a loss. In the long
term it is probably worth it for them in this instance since the $400 price
($100 less than Xbox One) really cut the legs off the Xbox One in the wake of
the always-connected DRM fiasco (which Microsoft has since backed off on).

There's plenty of places for them to make up the difference if the original
intent of increasing percentage of marketshare works (and it seems to be):
they get a cut of every game sold, they are likely to sell a lot of PS+
memberships, accessory sales (extra controllers, the PS4 camera) and they will
almost certainly get costs down faster than the retail price on the eventual
redesigns (PS4 slim or whatever) in a couple years.

On a related note, I've had a PS4 since Friday and the machine is very, very
nice.

~~~
tjdetwiler
The controller is much better than the older PS controllers. Unfortunately the
only game I have is Battlefield 4 which likes to crash every 15 minutes and
delete my save files (not a PS4-specific issue).

~~~
georgemcbay
I don't have BF4... my gaming on the PS4 has been blissfully crash free thus
far. I agree about the controller, the older Playstation DualShock controllers
were too small for my hands and would cause cramping after a while.. haven't
had that happen with the DualShock 4. I do kinda wish the analog sticks were
non-symmetrical the way they are on the Xbox/360/One controllers, but that's a
fairly minor detail and I have no other complaints about the controller.

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Drakim
That seems rather natural.

It wouldn't even be surprising if they sold the consoles at a loss,
considering there is a lot of money in owning as much as the market share as
possible, due to game sales but most of all the ever growing "online store"
phenomenon.

The fact that the PS4 costs a good chunk less than the XBox One and is
perceived as being the more powerful console will serve Sony well, I predict.

~~~
pyre
> It wouldn't even be surprising if they sold the consoles at a loss

Of the Wii, the XBox 360, and the PS3, only the Wii wasn't sold at a loss at
release. The idea that they would sell at a loss isn't new. They make their
money on the games.

IIRC, there were even people promoting buying the original XBox just to mod it
and run Linux on it, because every sale was a hit to Microsoft's pocket (since
you weren't using it for games).

~~~
iand
They make money on game licensing for sure, but the economics of consoles is
based on the falling cost of production over the lifetime of the console.
That's why consoles have 5+ year lifespans.

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dylandrop
"With the component cost and the retail price so close, it’s possible,
Rassweiler said, that Sony is taking a very small gross margin or even a
possible loss on the console in hopes of making it back on games. “If your
cost is within $10 to $20 of the retail prices, there’s very little chance
you’re making a profit on the console,” he said."

I feel like this understates it. Of course they're making their money on the
games. These discs (or even better, digital DLs) cost close to nothing to spit
out, yet sell for $60 each. Of course, Sony doesn't make get all of that
profit, but come on, Sony isn't stupid -- it's obviously trying to produce a
high-end, expensive console with plans on making money on the games.

~~~
seivan
´These discs cost close to nothing to spit out, yet sell for $60 each.´

What's that supposed to mean? These discs have contents that took years to
develop.

~~~
wdewind
Someone please correct me if I'm wrong, but my understanding was that Sony
licenses the discs to the publishers, so in fact to Sony the discs do cost
next to nothing (in which case you'd want to include the price of
developing/manufacturing the console to make the discs not "cost nothing," not
the cost of developing the games, which is on the publisher).

~~~
seivan
That actually makes more sense. Thanks for clarifying.

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CitizenKane
The article seems to really skew things for some reason. As others have
pointed out, it's actually very common for consoles to sell at little or no
margin.

Importantly for Sony, the cost of manufacturing the PS4, relative to the cost
of the system at retail versus how things were with the PS3 is a vast
improvement. Sony is likely taking a small loss on the console, but took very
large losses when initially selling the PS3.

They were in the position of having to sell a lot of games and accessories to
make up for the loss on the PS3, whereas even a single game or accessory sale
probably makes up most if not all of their loss on the PS4.

The article also really misses some crucial points. For one, it's not just
about games. There are accessories (controllers, playstation camera,
controller charging stations, covers, etc.), digital downloads (skins,
avatars, etc.), Playstation Plus, Sony's music streaming service, and a whole
array of revenue streams that are fairly high margin and in most circumstances
the loss they took on the console should be made up quickly.

From another angle, Sony is already at a price advantage and there's a decent
chance they won't discount the device as manufacturing prices drop. This is
the exact opposite position the PS3 was in as it was much more expensive than
it's competition and Sony had to continually discount the machine to stay in
the running with the Xbox 360.

Finally, a small aside. I think it's interesting now that the PS4 is on x86
and using a straightforward unified memory architecture. Doing a bump on this
(double memory, double cores, double GPU compute units) doesn't seem very far
fetched and could probably happen at a similar price point within 5 years.
This would give Sony a new console with a huge back catalog of games that
would not need to be ported (and could even have "HD" add-ons for download),
plus a bunch of new power for games on an architecture developers are already
familiar with. All this and it would likely cost a lot less to develop as
opposed to developing new hardware from scratch as has been done for every
generation previously. I think it would be an interesting move and could allow
Sony to have a long running platform to compete with.

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timje1
This is the first major console launch in many years where the console itself
is being sold at a profit - previous launches have sold the hardware at a
loss, and clawed back the profits on software. I believe this is true of the
PS1, PS2, PS3, 360 and original xbox.

The headline could be 'PS4 not being sold at a loss!' instead of 'PS4 is only
just scraping a profit'.

~~~
bluthru
It's still not being sold at a profit. Software engineering, marketing, etc.
are not figured into the price.

~~~
gamblor956
He's referring to "COGS", meaning "cost of goods sold" which only includes
costs directly related to the actual production and sale of the products sold.
Indirect costs, such as R&D and marketing, are not usually included in COGS
under US standard accounting practices (but are in some non-US accounting
practices).

Under standard accounting practices (GAAP), COGS is the only common above-the-
line expense item used to determine gross revenue (aka gross income).
Essentially all other expenses are deducted from gross income to determine net
income (i.e., profit or loss).

~~~
possibilistic
So sunk costs don't matter? How does that work out in the long run?

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jmharvey
Sony will also make money on hardware accessories. Most PS4 owners will buy an
additional controller ($59 retail, $18 teardown) and many will buy a PS4
camera ($59 retail, no teardown price listed here, but I've seen sub-$20
estimates discussed elsewhere).

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Tloewald
It seemed to me that Apple could really have screwed Sony and Microsoft by
announcing a game-capable AppleTV successor based on iOS (either requiring an
easy port or simply running existing iOS games using other iOS devices as
controllers). But thinking back on it, it would be even more devilish to wait
for Sony and Microsoft to sell a few million consoles at a loss and then do it
just when they might have started making profits.

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venomsnake
Well i suppose that they are selling them at break even points. Sony surely
gets pretty decent wholesale discounts on the BOM and probably give 50-80
dollars to the retailers. Which means that the outlook for next gen is bleaker
- even the developers of the console are wary of the next few years.

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myrandomcomment
I have an original PS3 (via eBay) which I acquired about 2 years ago. I wanted
this one as it still had the hardware to play PS2 games (I have a few). Today
is mostly used for playing Blu-ray disc (after Portal 2 was completed)! I
thought about getting the PS4 however the fact that it cannot play MP3 files
(or all the other stuff over DNLA) is a show stopper for me. I was not planing
to use it as an MP3 player (I have a media center PC hooked up to an external
DAC to an Tube Amp). However the fact that they purposely removed such a basic
function stops me from buying one. It is a jerk move on their part and I will
not support them by buying the PS4.

~~~
robin_reala
It’s coming: [http://www.engadget.com/2013/11/12/playstation-4-will-
suppor...](http://www.engadget.com/2013/11/12/playstation-4-will-support-cd-
and-mp3-in-the-future/)

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programminggeek
This is not really surprising when figure the cost to build a comparable PC.
When I say comparable, I mean comparable in size, specs, etc. Yes, you can get
a big case, discrete gfx card, cpu, and cheap together a machine for about
$400, but once you start making a smaller PC, it gets a bit harder to really
match what Sony has done.

Since the XBone is basically the same machine + kinect sensor, I'm guessing
the teardown price is going to be something like $400-450. Neither company is
making money on the hardware obviously.

~~~
ubercore
GDDR5 could potentially eat about a lot of that difference.

~~~
programminggeek
That is a very good point.

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hengheng
Consider that PS4 will be sold for a couple years with identical
specifications. Manufacturing cost will drop while yield increases, memory
gets cheaper and so on. Eventually they will move to a smaller case, further
integrate chips shortening the BOM, reduce power supply demands and so on.
Look at the different PS1, PS2 and PS3 revisions on Wikipedia, it's quite the
lesson.

------
err4nt
What many people are also overlooking is that while a gap of $18 at console
launch doesn't leave much profit margin, over the length of the console's life
they may become much cheaper (more profitable) to produce and sell, so maybe
they are offering a future-adjusted-yet-still-profitable-if-all-goes-
according-to-plan price point?

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JoshTriplett
I don't see any signs that this takes business deals into account: volume
pricing that covers other products (Sony makes many other products that use
similar parts), cross-promotion (getting paid to ship specific demos or
software), etc.

~~~
dfox
As for volume pricing it almost certainly does take that into account. Most
electronic component manufacturers publish "Budgetary price per xK pcs" which
I assume is where most of prices mentioned in article come from. For even
slightly specialized parts this number tends to be significantly lower (tens
of percent to order of magnitude for some parts) than price given by
distributor even for same xK volume discount. Also most significant parts that
are used across different Sony products tend to be either insignificant
(passives) or manufactured by Sony (or semi-custom parts manufactured for
Sony).

~~~
dfrey
I doubt there are published prices on the web for the volumes that Sony is
buying. Much smaller companies than Sony make special deals with suppliers for
parts.

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loganu
$318 is purely cost of parts and labour.

Doesn't include years of R&D, manufacturing setup, advertising, shipping,
support, finance-related costs, retailer mark-up, QA and repairs, etc.

Production costs will drop, but they are likely years away from profits.

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alphaBetaGamma
Have they never heard of the "Significant figures"? I doubt they estimate to
0.3%.

In fact, I would not be surprised if the estimation error is bigger than 5%,
so we don't know if they are selling at a loss or not.

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dboyd
Related post from a couple days ago (re: Valve's SteamOS)...

    
    
      https://news.ycombinator.com/item?id=6745386
    

And, from that article...

> Sony may have lost between $4 and $6 billion on PlayStation 3.

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mtgx
Considering the PS4 is much more powerful than the Xbox One, which also goes
for $100, I'm not surprised they're making very little money (or even losing
in the early days).

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bpicolo
I'd say randomly guessing that 1/3 of processors are useless is pretty out
there. I'm sure Sony has smarter process than that.

~~~
objclxt
It's not a random guess - it might surprise you just how low the yield
actually is on CPUs.

Yield is inversely proportional to die size, so the larger the die, the lower
the yield. Yield is also lower on newer manufacturing processes. Both apply
here. Furthermore, although some chips might be only marginally defective and
'binned' to a lower SKU that option isn't open to Sony. They have no use for
those lower-clocked chips.

Chip manufacturers never publish their yield figures, but if you look around
you'll see yields of around 60% are certainly not uncommon or unheard of.

~~~
pa5tabear
Are you sure about that? My background is limited but my understanding is that
chip makers will set their spec limits far higher than need be. The chips then
get tested, and those that struggle at the higher frequencies will be
designated as the lower end processor. Or those which have a single low speed
core will be designated as "tri-core" processors.

I know these practices wouldn't apply too well when you're making a PS4 with a
single performance level, but that 60% yield still sounds horrible from a
process design perspective.

~~~
icegreentea
Well, it depends on how you measure 'yield'. 60% yield at hitting "high-spec"
could easily mean 90% yield at "low-spec".

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wnevets
This is the entire point of the console ecosystem. Give the razors away at a
lost, make the money on the blades.

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pradn
Still pretty good, considering most consoles are sold for heavy losses in
their first few years.

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shocks
Consoles don't make money. Games make money. It's always been this way.

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cmsimike
I wonder how much they pumped into your advertising for this. I can't go
anywhere without hearing or seeing something relating to the PS4.

Weirdly, absolutely nothing from the Xbox One

~~~
Maascamp
That's pretty at odds with my everyday experience. I see Xbox One advertising
ALL THE TIME. I'm in NYC however and I'm sure it varies by location.

~~~
jsight
Same here... I have seen tons of XBox One advertising over the weekend, but
very little about the PS4.

~~~
caw
PS3 was the same way. Xbox completely dominated in the advertising space. I've
seen XBox One advertisements on TV but not PS4.

