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PS4 costs $381 to build in teardown – only $18 less than retail price
- dylandrop 13y ago"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 13y ago´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.
- bradddd 13y agoI think he's just commenting on the marginal cost of selling an additional unit after production.
- ihsw 13y agoIndeed, however the time and money isn't at the cost to Sony. Sony takes a cut of revenue from game sales.
- wdewind 13y agoSomeone 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 13y agoThat actually makes more sense. Thanks for clarifying.
- superuser2 13y agoBut Information Wants to be Free! If can duplicate it cheaply, it shouldn't have a price and no one should get paid for it. They can make money from selling t-shirts instead. You shouldn't expect to make a living just for creating things. /s
- barrkel 13y agoThey don't cost Sony anything to spit out, but Sony takes a big cut of the sales. Developers even have to pay Sony for hardware, SDKs etc. to develop the content.
- orbitur 13y agoThe key here is that they only recently started breaking even on the PS3, and it was released in 2006. I think they've learned their lesson.
- pyre 13y agoPart of the issue was trying to cram a BluRay player into the console at a time when BluRay players were new (and could cost $1k). HD-DVD hadn't even lost the battle when the PS3 came out. That, and going with the Cell processor probably really pumped up the cost.
- jrockway 13y agoBlu-Ray "won", right? So it sounds like that was money well spent.
- wmf 13y agoYep. IIRC at the time Sony said something to the effect that they were willing to lose $4B in the short term to ensure that Blu-ray won the format war.
- possibilistic 13y agoBut what happens if and when digital video goes completely to a streaming/download model? And what about 4K/8K? Can Blu-ray as it stands even support that, or would there have to be yet another disc format? I'm wondering if perhaps Sony won a Pyrrhic victory here.
- jrockway 13y agoUltimately, all the protons in the Universe will decay, rendering movies obsolete. I'm wondering what the point of anything is, knowing we will all become nothingness some day. (To be less abstract: they probably made back the money already. Everything else is gravy.)
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- arrrg 13y agoOf course the discs cost next to nothing to make but that’s not the point. If you think like that you are completely misunderstanding the entertainment industry and their cost structure. Actually making the game (not the disc but what’s on the disc) is extremely expensive and the production costs of AAA games are actually exploding. Think of all the more or less non-automateable manual work that is involved in creating believable virtual worlds. Think of all the textures that have to be painted, things that have to be animated, lines of dialog that have to be written and voice-acted. Much of this is hard, manual work. There is no way to make it better except by paying more people more money to do it. The second thing that costs a lot is marketing, i.e. making sure that everyone and their grandparents actually know about the game and want to buy it, mostly because making AAA games is so expensive already, so it better be successful. It’s perfectly reasonable to be worried about the new consoles and the future of (AAA) games. Even last generation expensive games like the Tomb Raider reboot sold tons of copies but were nevertheless barely satisfactory in their financial performance. Think about what kind of challenge it must be to make a game for a console fewer people have and that also needs much better assets (i.e. is more expensive) because what’s the justification for making a next-gen game otherwise? The next few years will be extremely interesting for video games. I’m very much looking forward to see how that shakes out (though I wouldn’t necessarily want to work on AAA games). Will there only be few, safe and expensive mammoths like GTAV? Or safe and boring yearly updates to games like Call of Duty? Some of this is already happening. Just look at the bankruptcy of THQ. And on the other end of the spectrum there are tons of indie games popping up (which purposefully limit their scope – mostly by not creating photo-realistic virtual worlds – to get by with much less money). This is a terribly exciting time for video games and I wouldn’t be surprised if this industry looks completely different in ten years (the supposed life-span of these new consoles – maybe the last consoles?). All of this is not to say that Sony doesn’t take a hit on the console but plans to make money some other way, that is probably very true. But it doesn’t have anything to do with the fact that making a plastic disc costs a few cents.
- dylandrop 13y agoYeah but the real question is how much Sony pitches in for development costs. From what I've heard, I hear that the dev company actually pays for all of that, but I'm not 100% sure since I can't find many sources. But if that is the case, then it has everything to do with disc costs.
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- bpicolo 13y agoI'd say randomly guessing that 1/3 of processors are useless is pretty out there. I'm sure Sony has smarter process than that.
- sp332 13y agoIt's not randomly guessing, it's comparing to defect rates in other 28nm processes. An example: if you have 30 chips per wafer and 3 defects per wafer, you get 90% good chips. But if you have only 10 big chips per wafer with the same defect rate, now you get only 66% good chips.
- objclxt 13y agoIt'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.
- grecy 13y ago> They have no use for those lower-clocked chips. Could they be selling them to someone else? i.e. if the GPU is binned to a lower SKU, could they be selling it to someone else that's then throwing it onto a regular PCI-e card for a desktop?
- wmf 13y agoThere is no product on the market with similar-but-slightly-lower specs to the PS4 chip.
- pa5tabear 13y agoAre 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.
- pradn 13y agoStill pretty good, considering most consoles are sold for heavy losses in their first few years.
- Drakim 13y agoThat 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 13y ago> 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 13y agoThey 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.
- timje1 13y agoThis 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'.
- kgp7 13y agoThe Wii was sold at a profit. Also I believe they are still making a loss, since the component breakdown doesn't include costs of marketing/development etc.
- bluthru 13y agoIt's still not being sold at a profit. Software engineering, marketing, etc. are not figured into the price.
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- gamblor956 13y agoHe'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 13y agoSo sunk costs don't matter? How does that work out in the long run?
- cmsimike 13y agoI 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 13y agoThat'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.
- pyre 13y agoThe PS4 is actually out. The XBox One is out in a couple of days. You can't do reviews, post tear-downs, complain about performance (or DOA consoles) when no one has the console yet (other than a handful of reviewers that might get a pre-release peak).
- joosters 13y ago"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 13y agoExactly. Whoever wrote this article doesn't know much about the console gaming business.
- alexholehouse 13y agoConsoles are like the archetypical example of loss leader hardware. I assumed this article would be going the other way - that Sony making any profit on the hardware is actually really surprising/impressive.
- crazygringo 13y ago> 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?
- macspoofing 13y ago>Wait, the retailer takes a significant cut too. They don't. They really don't. I'd be surprised if the retailer made more than $5-10 on the console.
- wmeredith 13y agoYou'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.
- aaronbrethorst 13y ago'razors and razor blades' http://en.wikipedia.org/wiki/Freebie_marketing http://en.wikipedia.org/wiki/Freebie_marketing
- Anonymous8202 13y agoYep, 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 13y ago> 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.
- JoshTriplett 13y agoI 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 13y agoAs 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 13y agoI 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.
- alphaBetaGamma 13y agoHave 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.
- wnevets 13y agoThis is the entire point of the console ecosystem. Give the razors away at a lost, make the money on the blades.
- venomsnake 13y agoWell 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.
- hengheng 13y agoConsider 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.
- mtgx 13y agoConsidering 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).
- georgemcbay 13y agoAs 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 13y agoThe 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 13y agoI 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.
- saadshamim 13y agoI don't think Microsoft is making much money either, the extra cost of xbox one is kinect.
- dboyd 13y agoRelated 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.
- jmharvey 13y agoSony 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).
- programminggeek 13y agoThis 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 13y agoGDDR5 could potentially eat about a lot of that difference.
- programminggeek 13y agoThat is a very good point.
- myrandomcomment 13y agoI 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 13y agoIt’s coming: http://www.engadget.com/2013/11/12/playstation-4-will-support-cd-and-mp3-in-the-future/ http://www.engadget.com/2013/11/12/playstation-4-will-suppor...
- kibwen 13y agoHell, 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-produce/ http://www.edge-online.com/news/isuppli-60gb-ps3-costs-840-p... "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."
- CitizenKane 13y agoThe 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.
- Tloewald 13y agoIt 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.
- loganu 13y ago$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.
- shocks 13y agoConsoles don't make money. Games make money. It's always been this way.
- err4nt 13y agoWhat 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?