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Xbox 360 "Half the Price of PS3" by Late 2006

Edge Staff's picture

By Edge Staff

November 2, 2005

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Merrill Lynch has released a new breakdown of next generation hardware component costs suggesting that Xbox 360 "could be selling at half the price of PS3 in the latter half of 2006." Full stats breakdown inside...



The report puts a positive spin on Microsoft's future with Xbox 360 versus Sony's PS3. It includes estimated breakdown of hardware costs by component and shipping predictions. Particular emphasis on the manufacturing costs of each console has been paid in this report. Some of the highlights include:

"…The PS3 will not only be significantly more costly than Xbox 360 at launch, but will continue to operate at a cost disadvantage for several years. … We think that the Xbox 360 could be selling at half the price of PS3 in the latter half of 2006."


"…Our analysis indicates that Microsoft has a significant advantage in terms of cost. Taking Sony's weakened financial condition  and Microsoft's deep pockets into consideration, we conclude that Microsoft's Xbox 360 should emerge as the early winner in the next round of the game console wars."

"Competitive pricing [for Microsoft] could hurt margins for Microsoft in the near term, but we think that Microsoft has the potential to exit 2006 with an installed base of 10 million units, with all that implies for more profitable software sales for 2007."

The report also states that ATI (GPU provider), Infineon (memory provider) and Marvel (licensed Microsoft to make an MMOG) could all benefit from an early lead on Xbox 360.

On the cost of goods side, Merrill Lynch believes that the Cell processor will initially cost $160 to make… more than the Xenon CPU which comes in at $100.

The graphics solutions will also be pricey. Both Nvidia's RSX and ATI's GPU will cost about $100 each. Price reductions over time will eventually get the parts to about $30.

Blu-Ray is also cited as an expensive solution for PS3. The cost of the drive is estimated to cost at least $75.

On the RAM side, Microsoft again is expected to have some advantage using GDDR3 given its availability on the open market. PS3's XDR main memory is "not a product that has gained acceptance elsewhere", implying some sort of additional risk or cost.

On the Hard Drive front, it predicts that PS3 will not have one included standard, but like Microsoft, it will be an add-on.

The report predicts that Microsoft will break even in year one of the 360's release and that profits will come in year two. The report predicts that 2 million hardware units will be sold in 2005 with 7 million shipping in 2006.

A lot of the predictions made are based upon the assumption that Sony will not take a significant loss on the hardware (which it believes to be the case given Sony's recent financial pressures). If Sony is willing to be aggressive on pricing with PS3, the report conceeds that many of these numbers are likely to change.

Costs By Hardware

PlayStation 3Component Est. Cost at Launch  Est. Cost after 3 Years 
CPUIBM Cell $               160  $                50
GPUNvidia RSX @550MHz $               100  $                30
Optical MediaBlu-Ray $               100  $                30
Memory256MB XDR/256MB GDDR3 $                60  $                30
HDDdetachable 2.5" HDD NA  NA 
USB6 ports $                  5  $                  3
Ethernetgigabit ethernet $                  5  $                  4
Wi-Fi802.11b/g $                  5  $                  3
BluetoothBluetooth 2.0 $                10  $                  5
OtherAnalog IC, ASICs, I/O $                50  $                40
Total
 $               495  $               195


Xbox 360Component Est. Cost at Launch  Est. Cost after 3 Years 
CPUIBM PPC $               100  $                35
GPUATI GPU $               100  $                30
Optical MediaDVD-ROM $                25  $                10
Memory512MB GDDR3 $                50  $                25
HDDdetachable 20GB HDD $                25  $                15
USB3 ports $                  5  $                  3
EthernetEthernet $                  5  $                  4
Wi-Fi802.11 a/b/g $                  5  $                  3
Controllersup to 4 wireless NA  NA 
OtherAnalog IC, ASICs, I/O $                25  $                20
Total
 $               340  $               145