Sony sells PS5 hardware at a loss, and costs could rise more

The PlayStation 5 launches fast for Sony Interactive Entertainment. The company reported its first quarterly financial results since the PS5 launch in November. And, as expected, the company sold a lot of hardware and made a lot of money. When it comes to gaming, Sony does not have much profitability. Software sales are rising and network services are generating more revenue. But one of the pain points that Sony has mentioned is the price of its latest gaming console. The PlayStation 5 hardware sells at a loss.

‘[SIE experiences] loss due to [the] strategic price points for PS5 hardware that are set lower than the manufacturing cost, ”reads the investor report.

The PlayStation 5 hardware sells at a loss.

The PS5 is $ 500 and the PS5 Digital Edition $ 400. And while that’s a lot of money, it’s not enough to cover what it costs to manufacture the system. Now, the PS5: DE drags the average selling price of the PS5 overall. The “strategic price point” is therefore probably between $ 460 and $ 490. The PS5 therefore costs more than that to manufacture.

It is not surprising that Sony is losing hardware. Microsoft has confirmed that they are doing the same with Xbox Series X / S. And in February 2020, Bloomberg reported that PS5 has a unit cost of $ 450. But it is probably the cost of goods and not a figure that represents the full cost of manufacturing, packaging and delivering the console through the retail chain.

Although Sony claims to have used inexpensive and ‘environmentally friendly’ packaging materials for the PS5 because of the environment, it is probably an example of corporate greenwashing. The thin PS5 box probably also saved the company a significant amount of money.

PS5 could continue with a loss while keeping component costs high

Sony (and Microsoft and Nintendo) will soon get no relief on manufacturing costs. Some of the most expensive components in the PS5 can rise in price.

Taiwan Semiconductor Manufacturing Co. (TSMC) is experiencing a huge demand for its manufacturing facilities that manufacture the system-on-a-chip (SOC) for the PS5. TSMC also makes chips for the Xbox Series X / S, Nintendo Switch, iPhone, M1 Mac and AMD’s CPUs and GPUs. Thirst for processors is so high that TSMC reportedly suspends volume prices for its partners.

Sony probably has millions of PS5 SOCs already paid for and ready to go, but they also want to meet consumer demand for PS5s. It is not going to sit on any components for long. Once it burns its current stock, Sony will have to go to TSMC again and pay the higher price for PS5 processors.

Memory prices are also rising, so Sony may have to start paying more for the PS5’s GDDR6. Again, this is not a cheap component, and the fluctuations in RAM pricing can go down deep in margins.

Of course, Sony as well as any business understands that this is all the cost of doing business. It’s likely that treating hardware as a loss leader is less detrimental to Sony’s conclusion than ever before. The company has spent the PS4 generation establishing a strong digital sales business with services like PS Plus, as well as selling microtransactions for games like Fortnite.

These service-based revenue streams have enabled Sony to avoid the decline in sales that was traditional during a transition from one hardware generation to the next. Instead, the company retains most of its momentum, and it’s probably OK to lose money on PS5 if it means consumers are excited to buy games and subscribe to services.