Delays likely for Sony’s PlayStation 3

Sony’s next-generation PlayStation 3 video game console might not appear in key markets this year and could cost the electronics giant $900 per unit to produce initially, according to Merrill Lynch analysts.

Sony has indicated a Spring launch for its console in Japan and the industry is not expecting a North American launch until November. But Hitoshi Kuriyama of Merrill Lynch in Japan says there are reports that the PS3 could be delayed by between six and 12 months, meaning an autumn launch in Japan and a late 2006 or early 2007 launch in the US.

Also, Merrill Lynch analysts in San Francisco have estimated that the initial bill of materials for PS3 could approach $900, falling to $320 by three years after launch.

The implications are that Sony could have to decide to make a substantial loss on the PS3 through subsidies or risk low sales at the higher price and hand the advantage to Microsoft – first to market with its Xbox 360 next-generation console.

Delays will also have an impact on revenues for companies supplying components for the PS3 such as Nvidia, which is making the graphics chip, as well as games publishers.

Merrill Lynch says the revolutionary multi-core Cell processor, developed with IBM and Toshiba, at the heart of the console appears to be difficult and expensive to manufacture, costing at least $230 per unit initially. The Blu-Ray DVD drive, which is a new Sony standard in competition with Toshiba’s HD-DVD, will cost an estimated $350. With expensive memory, graphics and other components the total cost could be $900 per unit in 2006.

As a result, the analysts suggest that Sony could limit supplies of the PS3 this year to 2m-3m in order to reduce such losses. Costs will begin to fall in 2007 and the parts should cost only about $320 three years after launch.

Sony is likely to reveal more on its plans for the console at the Game Developers Conference in San Jose in March and the E3 video games show in Los Angeles in May.