Wednesday, November 20, 2013

PS4 teardown: Video game console costs $381 to build on a $399 MSRP

IHS iSuppli has done one of its famous gadget teardowns on a new hardware release, and this time the company tore down the PlayStation 4. Including assembly, the $399 version of the PS4 costs Sony $381 to build, leaving the company almost nothing in terms of profit on the video game console itself. The data came from an early look at the report, on Tuesday, by AllThingsD.

Thin gross profit margins are not uncommon for video game consoles. For example, when the PlayStation 3 was released back in 2006, IHS conducted a similar teardown analysis and determined that the console cost Sony about $805 to build a console that it sold for $599 -- or a loss of $206.

Manufacturing costs eventually came down, but Sony moved its price down, as well, such that by late 2009, the PS3 was selling for $299, but cost $336 to build, still giving Sony a loss of $37.

Note, however, that these "loss numbers" are based on the retail price that the consoles sell for. Obviously Sony doesn't get that much money, instead only getting the wholesale value of the console -- unless it sells it directly.

Andrew Rassweiler, an analyst with IHS iSuppli in Los Angeles oversaw the teardown. He said that Sony would do the same thing even now, if it could get the console built for less.
If Sony could build the PS4 for a lower cost it would do so, but if history is any indicator, it would also lower its retail price.
According to IHS iSuppli, over half the cost of the console is accounted for by the CPU and memory ($100 for any unusually large AMD processor chip and $88 for 16 individual memory chips).

The AMD chip's size -- it is the largest physical chip that IHS has ever seen built on the relatively new 28-nanometer manufacturing process -- can lead to a higher probability of manufacturing defects, which IHS factored into its BOM cost. IHS estimated that about a third of the chips are likely to fail.

Referring to that possible issue, Rassweiler reiterated the well-known maxim of chip manufacturing,
When the yield goes down, the price goes up. It’s a well-established principle of chip manufacturing.
Sony has said previously that it plans to earn most of its profits on games, the same strategy used in selling the PS3, and the same strategy used for such items as printers, where the profit is made on the "consumables," such as paper or ink.

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