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Sony Selling PlayStation 4 Near Break-Even Point, IHS Says

Sony Selling PlayStation 4 Near Break-Even Point, IHS Says
Lower production costs were a crucial part of Tokyo-based Sony’s game plan for the PS4. Source: Sony Computer Entertainment Inc.

Nov. 19 (Bloomberg) -- Sony Corp. is almost breaking even on the production of its PlayStation 4 console after abandoning the use of custom components that contributed to losses on earlier models, according to an analysis of the product.

Materials for each player cost $372, and manufacturing adds $9 more in expenses, researcher IHS Inc. said today in an e-mailed statement. Those outlays amount to $18 less than the $399 U.S. retail price. When other expenses are tallied, Sony will still take an initial loss on each player sold, IHS said.

Lower production costs were a crucial part of Tokyo-based Sony’s game plan for the PS4. Andrew House, head of the unit, has said the decision to use readily available components on the new console, instead of custom chips and other parts, was made in part to reduce costs and ensure adequate supplies.

Relatively low material costs “will allow the company to break even or attain profitability in the future as the hardware costs undergo normal declines,” IHS said.

Additional costs would include software, licensing, royalties and other outlays, IHS said. Retailers also collect a percentage of the sale price.

The PlayStation 3, introduced in two models in late 2006 amid shortages, originally cost $805.85 and $840.35 to build, IHS’s teardown analysis found. They were sold for $499 and $599.

Sony said it sold more than 1 million PlayStation 4s in the first 24 hours after it went on sale Nov. 15 in the U.S. and Canada, including some that were purchased in advance.

The company is investigating operational issues reported by customers who purchased the machine from various retailers in the U.S. and Canada since it went on sale. Some machines may have been damaged during shipping, the company said.

“The number of affected PS4 systems is less than 1 percent, which represents a very small percentage of total units shipped to date,” Dan Race, a PlayStation spokesman, said in a statement today.

Sony American depositary receipts fell 0.2 percent to $18.69 at the close in New York. They have gained 67 percent this year.

To contact the reporter on this story: Cliff Edwards in San Francisco at cedwards28@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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