PlayStation 3 component prices: Why so high?

Processor: The PS3 will be a showcase for the Cell processor from the SIT powers (Sony, IBM, Toshiba). The cell consists of a PowerPC core with eight signal processing cores. While the large number of cores help run multimedia applications, they also make for one large chip. Cell will take up 221 sq ml of space, larger than the 168 sq ml of the Xbox 360 processor. Larger chips are typically more expensive to make.

A greater percentage of the real estate on the Xbox 360 chip, also from IBM, is given up to cache memory. Cache is typically cheaper to manufacture than logic transistors, which own more of the real estate on Cell. As a result, Sony faces two disadvantages in terms of cost.

Kevin Krewell, editor in chief of the Microprocessor Forum, estimates the chip will cost between US$150 and US$170 at launch. Merrill Lynch puts the cost at US$230, dropping to an estimated US$60 in three years. In comparison, iSuppli estimates the cost of the Xbox 360 chip at US$106.

The optical drive: For PS3, this is the killer. In 2006, manufacturers will have to pay US$200 to US$300 for Blu-ray drives, according to Wolfgang Schlichting, an analyst with IDC. By 2007, the price will drop to between US$100 and US$200. The Xbox has a standard DVD drive, with an optional HD-DVD drive.

Standard DVD drives sell for US$20 or less. Even recordable DVD drives at wholesale sell for a mere US$28 to US$32.

Graphics chip: This looks like a tie. Microsoft worked with ATI Technologies to develop a chip that costs about US$141, according to iSuppli. Sony teamed with ATI rival Nvidia for its chip, which could cost US$120 to US$150, according to Dean McCarron at Mercury Research. Since the two chips are based on the high-end PC chips from the two companies, and since ATI and Nvidia are such fierce competitors, it's a safe bet that the two are roughly equal here.

Memory: Looks like a tie, but Sony may take a slight hit here. The Xbox 360 will come with 512MB of GDDR (graphics double data rate memory, meant for handling graphics-intensive programs like games). The PS3 will come with 256MB of 700MHz GDDR 3 memory and 256MB of XDR memory. Bob Merritt of Semico Research said it's safe to assume that both types of memory will sell for a 100 percent premium over conventional DDR2 memory in 2006, dropping to a 50 percent premium the following year. A 256-megabit DDR2 chip sells for about US$2.46 on the wholesale market, he said, leading to a price of about US$79 for 512MB of GDDR (here's the math: 2.46 x 2 x 2 x 8. There are eight bits in a byte).

iSuppli and Merrill Lynch put the cost of memory at, respectively, US$65 and US$50. The average between the three is US$65.

The only variable is that XDR may not decline in price as fast as GDDR, which is more widely used. The royalty Rambus charges is unknown. In a twist, Samsung will make memory for both consoles.

Hard drive: The US$399 version of the Xbox 360 comes with a detachable 20GB hard drive. Sony will include a detachable drive but hasn't set specifications. So again, it's a draw. On the wholesale market, the drives go for about US$40.

Everything else: The power supply, the chassis, the wireless components--all of these parts will come from the same (or similarly situated) competitors in China and Taiwan and will cost the same. The "other" category of parts comes to about US$165, according to iSuppli and US$100 according to Merrill Lynch. Let's average that out to US$130.

Total: If you use the low-end figures for Cell (US$150) and the Blu-ray drive (US$200) the PS3 materials bill comes to US$700. The high estimate, including a US$230 chip and US$300 drive, comes to US$880. The average is US$790. The Xbox 360, meanwhile, comes in at US$476 through averaging prices from different analysts. A study from iSuppli puts the figure at US$525.