Sony nearing break-even point on cost of PS4 hardware

Sony is nearing the break-even point on its PlayStation 4 hardware cost as the result of a manufacturing price tag lower than its retail cost, analyst organization IHS announced today.

The new console, which is priced at $399 in stores, is produced with $372 in necessary material. This increases slightly when manufacturing expense is added in, bringing its production price to $381 ($18 less than the retail price of the console.)

Sony expects to initially take a loss on each console sold due to other expenses, and will either break even or attain profitability as hardware costs decline over time.

"When Sony rolled out the original model of the PlayStation 3 in 2006, our teardown analysis revealed that the console delivered supercomputer-class performance at a price equivalent to a notebook PC," said Andrew Rassweiler, senior director of cost benchmarking services for IHS. "However, this achievement came with a major downside for Sony, as the BOM costs for most of the different versions of the console were in excess of the retail prices, in some cases by more than $100. Although Sony brought the PlayStation 3's costs down significantly during its lifetime, the company's intent was never to make money on the hardware, but rather to profit through sales of games and content.

"This time, Sony is on a greatly shortened path to the hardware break-even point, or even profitability, with its cost-conscious PlayStation 4 design. The company is pulling off this feat, despite offering a brand-new design that once again includes avant-garde components that yield superfast performance. The PlayStation 4 keeps a lid on costs by focusing all the additional expense on the processor and memory-and reducing outlays for the optical drive, the hard disk drive (HDD) and other subsystems," Rassweiler added.

The PS4's core processor and associated graphic dynamic RAM represent the most costly aspect of the system at $188. This makes up just over 50 percent of the cost of the entire console, compared to fourth generation PlayStation 3 systems in which the same subsystems were just 29 percent of the overall price.

The console also sees a rise in the cost for DRAM, estimated at roughly $88. Comparatively, fourth-generation PS3 systems featured DRAM costing about $9.80. This increase in cost is the result of Sony's use of advanced graphics DRAM.

"GDRAM DDR5 memory has much higher bandwidth than the DDR3 used in the Xbox One. It also works better with parallel computing and is designed specifically to enhance graphics performance," said Mike Howard, senior principal analyst, DRAM & memory, for IHS. "Because of its cutting-edge status, GDRAM GDDR5 is more expensive than DDR3, which is used in high volume in products including PCs and older game consoles."

The PS4 also sees a reduction in the cost of its optical drive, down from the PlayStation 3's $66 CECH-2001A to $28. Optical drive mechanisms remain largely unchanged since 2009.

The table below shows a summary of major components and their suppliers for PS4 consoles.