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Sony makes it clear that the PlayStation 4 won’t be sold at a major loss

Video GamesFeatures
by Joel Hruska, 12 May 2013Features
Sony makes it clear that the PlayStation 4 won’t be sold at a major loss

When Sony built the PS3, it pulled out all the stops. The console had a custom-built processor based on a new architecture that IBM, Sony, and Toshiba jointly invested $400 million (£260 million) in developing. It packed a new (for 2005) Blu-ray drive, full backwards compatibility with the PlayStation 2, 256MB of high-speed custom XDR RAM, and a formidable I/O controller for keeping all the various components conversing with each other. Even the PSU – an integrated, low-profile 400 Watt unit – was a slick piece of engineering.

By 2005 standards, the PS3 was incredible – and it lost money like a sieve leaks water. iSuppli estimated that Sony lost $306.85 (£200) on every single low-end $499 (£325) PS3 it sold, with the high-end, $599 (£390) SKU costing the company $241.35 (£155). It took Sony nearly four years to start making money on the PS3′s hardware, a situation the company has been anxious to avoid this time around.

The expectation to date was that Sony and Microsoft would both try to shrink their per-unit losses to something more manageable, but would still carry a balance in the red, at least on early versions. Now it seems that this isn’t going to happen. On Thursday, during Sony’s earnings call, CFO Masaru Kato stated:

“Unlike PS3, we are not planning a major loss to be incurred with the launch of PS4. At the time we developed PS3, we made a lot of in-house investments to develop the chip, the Cell chip… This time, yes we have a team working on chip development, but we already have existing technology to incorporate and also product investment and all the facilities will now be invested by our partners, other foundries, so we don’t have to make all the investment in-house.”

This turns conventional wisdom on its head. Historically, only Nintendo has focused on shipping console hardware as profitable from day one, and the company broke that rule when it built the Wii U. Granted, Sony hasn’t said it’ll make money on the PlayStation 4, and the sheer size of the PS3′s losses early on means that the company could cut the figure way down and still claim victory. Still, it’s worth asking what makes the PS4 and PS3 so very different.

The cost contenders

Let’s compare the PS3′s most expensive component prices in 2006 and again in 2009…

Total cost of the listed parts in 2006 comes out to $477 (£310) before accounting for the power supply, hard drive, enclosure, additional cooling, wireless, wired networking, controllers, or the “Other” category (defined as $148, or £95, in 2006). By 2009, Sony had sharply reduced a number of these costs. The total number of components in the system had fallen to 2,568 from 4,048 at launch, and the PSU was down to 220 Watts from 400 Watts.

For a visual representation of the difference, consider the PS3′s original motherboard against the 2011 PS3 Slim edition (latter pictures courtesy of iFixit).

And the PS3 slim:

Remember, this hardware is exactly the same. In point of fact, when building consoles, maintaining subtle latency timings and design structures is more important than virtually anything else; Sony could have further shrunk the design if they’d been able to modify it substantially. It’s not just that the 2011 PS3 chips are smaller – the board itself is simpler. There’s a lot less stuff sitting on it. Working on these revisions saves money in the long run, but the R&D associated with developing them costs cash up front and takes time.

If you want to understand another facet of why the PS3 was so expensive, look at the traces. Those wire lines represent cutting-edge high-speed buses running at high frequencies with tight timings. The more bus traces you run, the more complex the PCB must be to handle the electrical load and keep signal timings clean.

In 2006, the PS3 had massive paths running between CPU and GPU, out to the I/O block (roughly analogous to a south bridge), and out to the four memory chips. The difference in size between the Cell-PS2 wires and the Cell-RSX traces gives you a visual idea of just how much bandwidth flowed between these components.

And here’s the great thing about the PS4 – all that functionality is now on-die. It’s still complex, but the complexity has moved from a fair-sized PCB with hundreds of separate components to a single chip.

Sony learns its lesson

The PS3 was technologically impressive. It could do things that the Xbox simply couldn’t do. A lot of those things ended up being poor investments in the long run. Cell was too difficult to program, and Sony killed the supercomputing initiative itself rather than risk anyone copying games via Linux, but the hardware was undeniably impressive.

The problem was that Cell was too impressive. Sony spent hundreds of millions on R&D and lost billions of dollars on PS3 hardware sales from 2006 through to 2010.

What did it get for those losses? It got to tie the Xbox 360 for second place in the console industry. And with the entertainment division’s profits down to just $18 million (£12 million), down 94 per cent year-on-year, and the entire company struggling back to profitability, there’s no shareholder stomach for a huge loss-leading console. Sony just reported its first profitable year in the past five, and while the overwhelming majority of the losses came out of the TV division, CEO Kaz Hirai needs to pitch the PS4 as contributing to the company’s financial health from launch day.

The PS3 was a no-holds-barred, costs-be-damned system that never really delivered the kind of performance Sony needed to justify the expense. The PS4 looks a heck of a lot smarter in that regard, though opinions are divided on how strong the hardware will ultimately be. Even if the company still takes a small loss per console, the chances of turning the hardware profitable within 12 to 18 months are much, much higher. That’s what Sony, and the market, truly needs.

While you’re here, you might also want to read our Secrets of the PlayStation 4 article.

Image Credit: iFixit

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