Sony Is Struggling With PlayStation 5 Price Due to Costly Parts
Scarce components have pushed the manufacturing costs for Sony Corp.’s next PlayStation to around $450 per unit, forcing a difficult price-setting decision in its battle with Microsoft Corp., according to people with knowledge of the matter.
Sony typically finalizes a console’s price in February of the release year, followed by mass production in the spring. With the PS5, the company is taking a wait-and-see approach, said the people, asking not to be named because the details are private.
The PS4, released in 2013 at a retail price of $399, was estimated by IHS Markit to cost $381 to manufacture. With the $450 unit cost and a similar gross margin, the PlayStation 5’s retail price would have to be at least $470.
The company’s biggest headache is ensuring a reliable supply of DRAM and NAND flash memory, with both in high demand as smartphone makers gear up for fifth-generation devices, according to people familiar with Sony’s operations.
Sony’s Chief Executive Officer Kenichiro Yoshida has said the business should be judged by the number of active users, not the number of hardware units sold. Some Sony games staff think it should sell the new console at a loss if necessary to match Microsoft’s price, while other Sony executives would prefer to make money as the company did with the PS4.
Most of the components for the console have been locked down, the people said, including the cooling system, which is unusually expensive at a few dollars per unit. Typically, companies would spend less than a dollar, but Sony opted to lavish more on making sure heat dissipation from the powerful chips housed inside the console isn’t an issue.
The ongoing coronavirus outbreak has had no impact so far on preparations for PlayStation 5 production, they said.
Separately, Sony plans to release a new version of the PlayStation VR virtual-reality headset, tentatively scheduled after the PlayStation 5 goes on sale, the people said.
Sony executives are voicing patience about the next console’s pricing as they anticipate the transition to be a gradual one, said people familiar with its day-to-day operations. Many of the games launched for the PlayStation 5 will also be available to play on the predecessor machine
People within the PlayStation business unit said a key factor in deciding the ultimate PlayStation 5 retail price will be where Microsoft sets its price for the next-generation Xbox Series X.
There is pressure from CFO Totoki for Sony to provide more transparency and information in the buildup to the PS5’s release, which has caused some consternation internally.
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