Why Sony can't drop the PS3 price

iSuppli has updated their cost estimate for the Sony PlayStation 3 console and claims the latest model costs Sony around $448.73 to manufacture. That's 35 percent less than the old model which cost $690.23, but it's still far from profitable as Sony sells these units for $399. This prevents Sony from cutting the price of its console, but iSuppli believes Sony may be able to break even in 2009 with new hardware revisions.

iSuppli's report, issued Monday, says that the current PS3 model contains 2,820 individual parts, including Nvidia's Reality Synthesizer, IBM's Cell Broadband Engine, and Toshiba's I/O controller, which are now made using 65-nanometer process technology, compared to 90-nanometer technology formally employed in the previous iteration. That has drastically reduced the PS3's power supply cost by 30 percent from $30.75 to $21.50.

Kionix's three-axis accelerometer in the PS3 controller has replaced the Hokuriku Electronic Industry Co. part, saving Sony an estimated $1.45 per unit.

But perhaps the most important cost savings is in the console's vaunted Cell processor from IBM. According to iSuppli, the latest PS3 includes a new version of IBM's Cell Broadband Engine, which is priced at $46.46 -- 28 percent lower than its original cost in the first-generation hardware. A new version of Nvidia's Reality Synthesizer, the console's GPU, at $58.01 per unit is now priced 30 percent lower than it was in the first generation.

Altogether, Sony's second-generation PS3 features a 35 percent total cost reduction from the first-generation model. In dollars and cents, today's PS3 costs Sony about $448.73 to produce, compared to the old model's $690.23 price tag. That said, the lower cost doesn't include software, box contents, and royalty expenses.