Dec. 30 (Bloomberg) -- Sony Corp. has reduced the cost of building the PlayStation video-game console by 35 percent, part of a push to make the division profitable and possibly paving the way for a price cut next year.

The newest PlayStation 3 console costs Sony $448.73 to produce, down from $690.23, El Segundo, California-based researcher iSuppli Corp. said yesterday in a statement. The machine has 30 percent fewer parts than earlier versions, iSuppli said.

Falling costs bring Tokyo-based Sony closer to breaking even on producing a PlayStation 3 that sells for $399 in stores, said Andrew Rassweiler, principal analyst of iSuppli’s teardown division that examined the console. Sony, the world’s second- largest maker of consumer electronics, has been under pressure to cut the PS3’s retail price to keep up with sales of the less expensive Nintendo Co. Wii and Xbox 360 from Microsoft Corp.

“If they can get costs down, they will be in a better position to cut price,” said Michael Pachter, a Los Angeles- based analyst for Wedbush Morgan Securities. “I wouldn’t look for a price cut until April. They need to drop price by $100 to be competitive, and the cost of the box still won’t allow that.”

Pachter said he expected the Nintendo Wii to outsell PlayStation 3 five-to-one during December.

In November, U.S. sales of the PlayStation 3 declined 19 percent from a year earlier, while purchases of the Nintendo Wii more than doubled and Microsoft sold 8.6 percent more Xbox 360 consoles, according to researcher NPD Group Inc. The Wii costs $249 and the least expensive Xbox 360 model costs $199.

2008 Sales

Through last month, consumers have purchased 2.8 million PlayStation 3 consoles in the U.S. this year. They’ve bought 8 million Wii consoles and 3.3 million Xbox 360 machines, according to NPD, based in Port Washington, New York.

Sony spokeswoman Julie Han said the company has no plans to cut the price of the PlayStation 3 this year. Sony rose 2.8 percent to 1,900 yen yesterday in Tokyo trading and has dropped 69 percent in 2008.

Chief Executive Officer Howard Stringer wants Sony’s games division to be profitable in the fiscal year ending in March 2009. In May, the company predicted the unit’s ability to make money would help drive a 20 percent rise in operating income.

The PlayStation division lost $3.4 billion in the past two fiscal years as the flagship player was outsold by Wii.

“If they drop the price during 2009 then all bets are off,” Rassweiler said. “If in order to get more traction they have to drop that price, I would say from a hardware perspective it’s going to be a subsidized product.”

Costs typically come down as companies become more efficient building their products, said iSuppli. Sony found additional savings with new technology that allowed it to reduce the number of components in each machine, iSuppli said.

Holiday Sales

During the U.S. holiday shopping season, the gaming industry has been propped up by Nintendo’s Wii, said Colin Sebastian, a San Francisco-based analyst at Lazard Capital Markets. He expects the industry to show “modest growth” in December, slower than the 10 percent gain in November.

“The reality is Sony is struggling to gain a foothold in this current cycle and that continued over the holiday season,” said Sebastian, who doesn’t own Sony stock. “They’ve lost a lot of market share and the holiday period likely amplified that overall trend.”

Microsoft, based in Redmond, Washington, fell 17 cents to $18.96 today in Nasdaq Stock Market composite trading. It has declined 47 percent this year. Nintendo, based in Kyoto, fell 750 yen yesterday to 33,400 yen and has retreated 50 percent this year.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: December 29, 2008 17:03 EST