The cost of building Sony's upcoming PlayStation 3 could reach as high as $900 per box initially, far higher than earlier estimates and sure to dampen user demand for the console, according to US investment banking firm Merrill Lynch.
"It's now clear that the box is prohibitively expensive to make," the firm said in a Friday research report, adding the cost will probably cause Sony Computer Entertainment to delay its launch by up to a year.
The Merrill Lynch prediction focuses on the cost of actually making each box, not the price for end users. Game console developers often absorb a portion of the cost to ensure the price is attractive to consumers.
New standards - at a price
The cost of the Blu-ray disc drive and Sony's Cell processor are the main problem areas for PlayStation 3, Merrill said. The Blu-ray drive will likely cost $350 per unit because it's still such a new standard, a price tag that could drop to $100 in three years as the amount of consoles and players increases. The Cell could cost as much as $230 each initially, a price dropping to around $60 after three years, Merrill Lynch estimates.
The cost of the overall system could drop to $320 apiece three years after the launch, as prices of many components inside fall, the investment firm said.
The excessive cost of building the machine could cause a delay of between six months and a year, putting the Japan launch during the second half of the year and a US launch in late 2006 or early 2007, the company said. And the high material costs could limit the number of PlayStation 3's produced to just 2 million to 3 million units in 2006.
Second harvest for Microsoft
Such a delay in the PlayStation 3 would be great news for Microsoft Corp's Xbox 360, the report noted.
"A delay in Sony's launch of (PlayStation 3) would give Microsoft additional time to capitalise on its first-mover advantage. This would be particularly true if Sony does not launch in North America and Europe until late 2006 or spring 2007, giving Microsoft a key second holiday season to sell game consoles and software," Merrill Lynch said.
A significant PlayStation 3 delay would likely cause some users to go ahead and buy Xbox 360s instead of waiting further, the company said, which could add upside to its prediction of sales of 10 million Xbox 360s by December of this year.
Sony sticks to spring schedule
Sony Computer Entertainment declined to comment on the Merrill Lynch report and reiterated that it will be releasing more details regarding the PlayStation 3 and its launch at the upcoming Electronic Entertainment Expo (E3) that will take place in Los Angeles in early May.
The company is also sticking to its announced launch schedule of "spring." SCEI president Ken Kutaragi declined to comment on launch plans when asked about them at the Consumer Electronics Show (CES) in Las Vegas in early January.
Sony shares slipped in Tokyo trading on Monday after the report was published. They ended the day down ¥200 at ¥5,300.