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Sony Is Struggling With PlayStation 5 Price Due to Costly Parts

CyberPanda

Formerly 'CurryPanda'
Mar 4, 2019
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Sony Is Struggling With PlayStation 5 Price Due to Costly Parts
By
Takashi Mochizuki

February 14, 2020, 9:20 AM GMT+5:30
  • May wait for Microsoft’s Xbox group to make first pricing move
  • New PlayStation VR headset also planned after PS5 launch
Scarce components have pushed the manufacturing costs for Sony Corp.’s next PlayStation to around $450 per unit, forcing a difficult price-setting decision in its battle with Microsoft Corp., according to people with knowledge of the matter.


The Japanese conglomerate is preparing to gradually replace the six-year-old PS4 console, releasing its PlayStation 5 the same holiday season its archrival debuts the upcoming Xbox Series X. Sony typically finalizes a console’s price in February of the release year, followed by mass production in the spring. With the PS5, the company is taking a wait-and-see approach, said the people, asking not to be named because the details are private.


The PS4, released in 2013 at a retail price of $399, was estimated by IHS Markit to cost $381 to manufacture. With the $450 unit cost and a similar gross margin, the PlayStation 5’s retail price would have to be at least $470. That would be a hard sell to consumers, considering Sony’s most expensive machine now is the $399.99 PS4 Pro and is often discounted, according to Macquarie Capital analyst Damian Thong.


“Consumers will benchmark their expectations based on the PS4 Pro and PS4,” Thong said. “If Sony prices above that, it would likely be to balance a need to offset higher materials cost, against risk to demand.”


Sony declined to comment.

The company’s biggest headache is ensuring a reliable supply of DRAM and NAND flash memory, with both in high demand as smartphone makers gear up for fifth-generation devices, according to people familiar with Sony’s operations. Samsung Electronics Co. just announced its Galaxy S20product range, each variant of which will have 5G and a minimum of 12GB of RAM in the U.S.

Videogame companies often sell hardware at thin margins or even at a loss because they profit from lucrative game software and recurring online subscription services. Sony’s Chief Executive Officer Kenichiro Yoshida has said the business should be judged by the number of active users, not the number of hardware units sold. Some Sony games staff think it should sell the new console at a loss if necessary to match Microsoft’s price, while other Sony executives would prefer to make money as the company did with the PS4.

We must keep PlayStation 5’s bill of materials under our control and we need to make the correct number of units in the initial production,” Sony’s Chief Financial Officer Hiroki Totoki said at an earnings briefing earlier this month.

Most of the components for the console have been locked down, the people said, including the cooling system, which is unusually expensive at a few dollars per unit. Typically, companies would spend less than a dollar, but Sony opted to lavish more on making sure heat dissipation from the powerful chips housed inside the console isn’t an issue.

The ongoing coronavirus outbreak has had no impact so far on preparations for PlayStation 5 production, they said. The company has yet to decided how many PlayStation 5 units it will make in the first year, they added.


Separately, Sony plans to release a new version of the PlayStation VR virtual-reality headset, tentatively scheduled after the PlayStation 5 goes on sale, the people said.

Sony has already canceled some previously planned features for a new mirrorless camera due this year owing to the constrained DRAM supply, several people with knowledge of the matter said.
Sony executives are voicing patience about the next console’s pricing as they anticipate the transition to be a gradual one, said people familiar with its day-to-day operations. Many of the games launched for the PlayStation 5 will also be available to play on the predecessor machine, so revenue from software and related network services is expected to keep the business performance intact. Microsoft and Sony are both expanding their respective online subscription services, revenue from which may allow them greater flexibility on hardware pricing.

People within the PlayStation business unit said a key factor in deciding the ultimate PlayStation 5 retail price will be where Microsoft sets its price for the next-generation Xbox Series X. Microsoft is widely expected to hold that information back until the E3 gaming expo in Los Angeles in June.

There is pressure from CFO Totoki for Sony to provide more transparency and information in the buildup to the PS5’s release, which has caused some consternation internally. Asked about when he expects Sony to provide guidance on the gaming business outlook for the new fiscal year, Totoki said the plan is no different from the recent past, meaning the guidance can be expected around the end of April.

If the company takes longer than usual, analysts may look to its next investor relations meeting to glean hints about the new console’s retail price. The company held that meeting in late May last year.
 
Mar 8, 2018
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Is this there greatest power move ?
Sony is in trouble right now. They will follow Microsoft's pricing model for Xbox Series X, because lets face it, they dont hold a candle to Microsoft's technical prowess.
Microsoft knows what it is doing regarding Xbox Series X and has many more surprises stored for us.
 
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Solid_Snake_

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Feb 23, 2019
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New PS5 Feature Reportedly Cancelled Due to Supply Issues

More specifically, it's being reported that Sony was previously planning on including a new mirrorless camera with the PS5, but this had to be cancelled to a shortage of DRAM supply. Of course, this isn't a major feature for the console, but it does illustrate just how much this shortage of components is impacting the piece of next-gen hardware.



For those that don't know: a mirrorless camera, also called DSLM, is a camera that features a single, removable lens and that uses a digital display system rather than an optical viewfinder. Here, "mirrorless" is just a reference to the fact that the camera does not make use of an optical mirror or an optical viewfinder like you would see in a conventional digital single-lens reflex camera. Rather, it contains an electronic viewfinder that displays what the camera image sensor sees.


 
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Kagey K

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Dec 18, 2013
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I’m pretty sure I can tell you the price of the PS4. You want the original the slim or the pro?

Im pretty sure that makes me an insider now? Any mods want to vet my sources?
 
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Kagey K

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Wtf. Did I just see the same post with 2 different thread titles?

Im confused. 🤪

 
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meirl

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Most of the components for the console have been locked down, the people said, including the cooling system, which is unusually expensive at a few dollars per unit. Typically, companies would spend less than a dollar, but Sony opted to lavish more on making sure heat dissipation from the powerful chips housed inside the console isn’t an issue
Jet engine confirmed.
 

sinnergy

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Jun 16, 2007
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Reading the article it seemed they made the wrong decision to retail PS4 pro for 399, now they are stuck at that price point. As that’s their premium offering , and a launch PS 5 is not .

If Series X is 399 I’ll laugh we will have a nice soap 👍🏻
 
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Feb 14, 2010
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Sony always report mau’s but also they report sold numbers. On the other hand Microsoft only reports sold numbers when there are winning lol
Microsoft said active users is more important and went away from hardware sold. I'm sure probably had to do with they didn't sell well. So had to find another metric that was important to feed to investors.
 
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Kagey K

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Sony always report mau’s but also they report sold numbers. On the other hand Microsoft only reports sold numbers when there are winning lol
Really???

You don’t remember the “playstation family“ sales numbers from last gen? Or how everyone had to estimate sales for PS3 until 2010 or so?

It’s only MS that does it when they are losing right?

Give me a break.
 

sinnergy

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Sell it for $350 and losslead for a year. Isn't that what they always do anyway?
Yes and then create a game pass , rebuild ps now, because they also think this is the future . With that price you will be leader, but their pockets aren’t as deep as MS.
 

GreatnessRD

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This is one of the reasons why I stated in a thread on here that I can't see the PS5 being below $450. Everyone kept harping back to the PS4's price, but by time the PS5 comes out, the PS4's launch price would be 7 years old. You gotta account for inflation and just downright finessing. I think anyone who believe that either of the Next-Gen consoles releasing at $399 are kidding themselves. Casual or hardcore, doesn't matter, the price is going up.
 

Dr.D00p

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May 23, 2019
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They're obvioulsy hoping Microsoft will gift them a 'get out of jail free' card by pricing the Xbox Series X at the top end of the scale...if they do, Sony can follow suit. There won't be any serious price difference this time around, folks.
 

adamosmaki

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Oct 9, 2019
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but console fanboys told me we will be getting rtx2080 performance console with a mid range cpu for only 400. and that 450 is just materials cost from what the article implies. doesn't take into account stuff like r&d costs, shipping costs etc etc. would not be surprised if it launched at 600
 

ZywyPL

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Nov 27, 2018
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2013's 399$ is already ~442$ in 2020's money, so 450 production costs and final price would be such a good offer, especially considering how powerful the console will be. I mean, the Pro was released for 399$ like just 3 years ago, if Sony could really make the PS5 449$ that would be a no-brainer.
 

Jigsaah

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Jan 31, 2018
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Hmmm...I think their biggest concern is threading the needle. Beat Microsoft's price and minimizing the impact to their profit or possible loss. I'd imagine this has been a point of stress for Sony ever since the 360. I don't think Microsoft is too worried about this with how the company is doing as a whole and given the enormous amount of investing they've been doing. This might actually play right into their hands. However, only thing is...I don't think Microsoft sees it this way. They've already said they got their eye on Amazon and Google. I suppose they can fight on 2 fronts, but I think Microsoft is very comfortable with a $500 price tag. This article is saying Sony is struggling to muster $470? I think they could sell the console at cost ($450) and they'll be fine. Consumers will take whatever win they can get. If that happens to be a $50 discount to get into next gen, it's going to matter.

I'm still getting both regardless but I know I'm not in the majority here but I don't see the pricing as catastrophic. The potential shortage, on the other hand, would be bad, but the question is...wouldn't something like the corona virus also affect Microsoft's manufacturing? I'm pretty sure they don't make all their parts in the U.S. Xbox would be much more expensive if that were the case. Also, console makers are accused all the time of manufacturing phony shortages to cause next gen fever. What's the difference if the shortage is real for a time?

I'm not defending Sony necessarily here...I just think the article might be stating a bit of the obvious.
 
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Stiflers Mom

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Said everyone every time new consoles came out since the beginning of time (1978)
No.
This gen was super boring.
Extremely safe PS4 vs a MS console that was underpowered from the beginning and got such a bad start PR wise before even the gen began, that it was no match for Sonys product.
The Switchs success was a bit of a surprise, though.
 

SuperLupeRap

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Nov 17, 2019
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Ya’ll gonna flip out like ya’ll did with the Xbox Series X software sitch or ya’ll gonna be a bunch of hypocrites?
They'll be a bunch of hypocrites of course. Remember how it was absolutely anti-consumer and evil to charge for online with Xbox Live?

That wasn't s problem anymore when Sony forced then to pay for online when PS4 launched.