In an effort to quickly turn around the struggling Playstation 3 business, Sony has reduced the hardware cost of their expensive system by 70%. The Playstation 3 launched in late 2006 in Japan and North America (early 2007 in Europe). It was the third home console for Sony. Previously, the Playstation and Playstation 2 easily dominated the competition from the decade prior. In fact, both of the first two video game systems from Sony managed to break the 100 million units sold mark.
For the Playstation 3, Sony decided to be rather ambitious when designing the hardware. They spent a hefty amount of money on the Cell Broadband Engine. Furthermore, Sony decided to include a Blu-Ray drive onto the Playstation 3 in order to push their format over the HD DVD in the high-definition format war. Finally, the high-tech system is built so much more than just a video game system. Sony envisioned the Playstation 3 as a media box and did not skimp out on any details.
Because of all the expensive parts, Sony had to charge a premium price tag of $599.99 when the Playstation 3 launched in North America. However, Sony was losing an estimated $200 per unit sold. With low sales to boot, the once flourishing video game company is now bleeding out cash.
Thus, Sony moved quickly to reduce the costs of the Playstation 3. For one, several extraneous features on the system were removed. Perhaps the most controversial of which is backwards compatibly for Playstation 2 games. Sony first removed the Emotion Engine chip from the Playstation 3 followed by the Graphics Synthesizer. Eventually, newer Playstation 3 models lost the ability to play Playstation 2 games. Other notable removals are Super Audio CD support and the reduction of the number of USB ports.
Sony also worked diligently at reducing the Playstation 3 chip set, which cuts manufacturing and shipping costs. The original Playstation 3 models used 90nm chips. In just a year, Sony was able to reduce it down to 65nm. One and a half years later, the Playstation 3 chip set is now down to 45nm.
Thanks to all the costs reduction efforts, Sony has been able to shave off 70% of the initial hardware costs on a single Playstation 3 unit. Presumably, a single Playstation 3 now costs $240 to produce.
Many are speculating that this will result in a price cut and the release of the Playstation 3 Slim (with the aforementioned 45nm chipset) sometime in the very near future. Sony definitely needs the extra hardware sales of their struggling Playstation 3 business.