Console Post of the Week: Sony Follow-up and Nintendo Earnings
This was getting big press last week:Since the 2006 launch of PlayStation 3, Sony has wrestled down build costs for the console by about 70 percent, Sony CFO Nobuyuki Oneda said in an earnings call this week.
What basically happened is that every site took the original iSuppli cost estimate at launch ($805 cost for the $499 unit), cut that by 70 percent, and said the PS3 was now costing $240 to make.
Not so fast, my friends.
Skip Key sent me an outstanding bit of analysis:
...if it were $240 now, they'd have already cut the price, and done so before last Christmas. No one is taking currency fluctuation into account. At release the dollar was about 117 yen, it's about 95 yen now (up from 90 yen). That's about a 19% currency hit.
So by my math, using 70% cheaper in yen, if you start with $805, it's down to $287. And if you assume that a good chunk of that, say, $50-75, came in the last few months as Blu-ray drives have dropped in price a bunch, then it would match Sony's behavior on the PS3 pricing fairly well, because there wasn't really a need to drop the price in the spring when it's not a big buying time.
There's never been a way to verify iSuppli's original cost estimate (and a fair number of people thought $805 was too low), but I seriously doubt it was too high. So the absolute bottom in terms of cost right now for the PS3 is more likely $285+ than $240.
Still, though, it seems like that figure would give them the leverage needed to drop the price to $299. At this point, I think a $50 cut gives them a little pop for a few months, but in the context of the numbers they're trying to drive, it's pointless.
Even worse, and I don't usually mention handhelds, the PSP GO has catastrophic failure written all over it. $249 for a handheld when you can get a 360 for $199 or a Wii for $249? Oh, and no physical media.
Here's what Chris Kohler's mom had to say about the GO and its lack of physical media:
That sounds really confusing. Parents are going to go into the store looking to get something for their kids for Christmas, and they're not going to understand what it does.
Chris Kohler's mom, dispensing crystal clear analysis of the gaming market since 2009.
Sony is still forecasting sales of 15 million PSP units for the fiscal year, even though they only sold 1.3 million units in the first quarter (down 65%).
Here's one more piece of data. Skip let me know that Sony issued a one-page supplement to their earnings report, and it listed software sales. Here they are:
PS3: 14.8 million (down 35%)
PSP: 8.3 million (down 30%)
PS2: 8.5 million (down 56%)
Again, the declines are remarkable.
Moving on.
Nintendo isn't all sunshine, either. Wii sales in the last quarter were 2.22 million units, compared with 5.17 million last year. That's a decline of 57%, which is staggering.
On the plus side, they've sold 52 million Wiis worldwide without a single price cut, and they're making a tidy profit on hardware. They can cut to $199 whenever they want to and set off another massive round of buying.
I keep hearing people say that the "fad" is over now, and the Wii is headed for a steady decline. Um, no. The system is still selling at the launch price after two and a half years! 52 million units and the fastest selling console in history does not add up to fad.
Having said that, Nintendo needs to get off its ass in terms of software. This will be the second mediocre holiday season in a row for Nintendo developed titles, and it will inevitably have an effect.
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