The PS4 may in fact be far cheaper to produce than anyone expected. An industry analyst (IHS) has dismantled the Black Beauty and estimated that the cost of producing each unit to be a healthy margin below the selling price. Profit on day 1? This would be a significant departure from the cash-bleeding PS3 at launch. That will help Sony recoup its investment much more quickly. So what is the total estimated cost of making the PS4? Which parts cost the most? Read on…

What do business analysts get excited about doing with hot new gadgets that would freak most of us out? Tearing them apart! That’s right! Many companies try to keep the details of their production – and the costs –  under wraps for strategic reasons. Unfortunately for them, analysts are only too happy to run after a new smartphone, iPod or PS4 with a screwdriver and tear it apart.

Total costs

Industry analyst IHS has done just this in order to calculate the Bill of Materials (BoM). So what’s the number? 372. That’s USD, but wait, there’s more. The cost of manufacturing is estimated at 9 USD, bringing the BoM and manufacturing to a final total of $381. The selling price? $399. That’s an $18 difference, which is more than some expected. You can see in the chart to the right that IHS also calculated the 2009 PS3 model at $336.

 However, with the new PlayStation 4, Sony has produced a design whose component and manufacturing costs are starting out lower than its price tag—paving the way for the company to quickly attain profitability on hardware sales, according to preliminary results from the Teardown Analysis Service at IHS Inc. 

Andrew Rassweiler, senior director, cost benchmarking services for IHS

But could costs be even lower than this? We don’t know what discounts Sony may have negotiated for bulk manufacture. Could it be 20%? Or 30%? If Sony achieves a 25% bulk manufacture discount, assuming $381 is a typical retail price for manufacture, then that 381 could be just 286 dollars per unit. In that scenario, the past tendency to make a serious loss on the launch version of the console is truly behind them.

Learning from the previous generation

This is a game-changer for Sony at a time when the technology world is filled with influential tech thinkers that want to tell the dominant companies of the past ten years that their sales models are out of date and that their plans to survive the next tech generation are doomed. Surely many of these prophets of doom are on vacation, since 2013 has blown even Sony’s expectations.

 The bill of materials (BOM) for the PlayStation 4 amounts to $372. When the manufacturing expense is added in, the cost increases to $381. This comes in $18 lower than the $399 retail price of the console. 

Andrew Rassweiler, senior director, cost benchmarking services for IHS

These figures are healthy. The PS4 console does not depend on extra game purchases or PSN subscriptions to prop up its financial health according to this estimate. That’s quite different from estimates that have been coming out in the last few months suggesting that without a game purchase, Sony would still be making a loss. Plus, these analysts are reliable because they get paid for knowledge and advice -so can’t afford miscalculation.

These are the key figures involved yet there are other costs that will nibble on profit such as marketing and transport. It is still a triumph to keep the BoM so low however.

All boats rise with the tide

Take a closer look on the left. Here is the list of vendors (suppliers) that Sony is in business with for the manufacturing of each PS4 unit. This is a tasty opportunity to see which other companies benefit from the success of the PS4. Here are some big ones: Fujitsu, Samsung, Qualcomm, Bosch, AMD, Wolfson, and Panasonic. These companies supply graphics, HDMI capability, audio codec, bluetooth, and of course the processor.

 This processor is a monster, with the surface area of the chip amounting to about 350 square millimeters. That is three times larger than any other chip manufactured using equivalent-process technology that has been examined by the IHS Teardown Analysis service. 

Andrew Rassweiler, senior director, cost benchmarking services for IHS

So we know that with the rise of the PS4 these companies gain from Sony’s success literally. It’s a very reliable source of income to be a major supplier to a very successful product that has years of sales left…

How does this fare with the Xbox One?

Microsoft will try hard to match Sony’s sales figures in the coming months but the details in these teardowns add extra depth to the simple, rounded numbers. Mike Howard, senior principal analyst, DRAM & memory, for IHS did mention something that will be welcome to every PS4 fan:

 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 

That’s right, you can trust your eyes this console generation; if your eyes hurt when you look at the same game on the Xbox One after playing it on the PS4, it is for good reason – the PS4 packs a sledgehammer in the graphics department. As we move into the next gaming generation in 2014, gamers using the Xbox One may get tired of sub-standard graphics and the substitute of having connected TV. The PS4s hardware advantages however will come into its own.

The BoM for the Xbox One comes in at $457 with an extra $14 for manufacturing, a total of $471 which is still short of the $499 retail price. That’s a slightly higher margin than the PS4s $381 BoM. But the pressure is now on Microsoft to reduce its console to the cheapest level this generation – no doubt Sony will be glad to pass that challenge on.

Read IHS’s teardown in full here. You can also watch a full video teardown and analysis here.

 

Discuss:

Will the cheaper PS4 manufacturing be much help to Sony this generation? Has Sony cut out any features to achieve this?