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The PS4 will lose money at launch, but don’t blame the hardware, blame the yen

In order to ease the concerns of investors worried about the strengthening dollar compared to the yen and what that means for Sony’s profits, Sony Computer Entertainment CEO Andrew House claimed that the expected losses from the launch of the PlayStation 4 will be nothing like those of the PlayStation 3. According to a report from Bloomberg, Sony initially planned for the gaming division to break even this year, but currency fluctuations have shifted expectations for the worse. The losses will still be minor compared to the last console launch though. 

The PS3 launched in 2006, and each unit sold was sold at a loss. The exact amount each unit lost is difficult to estimate, but it took over three and a half years before the console began to make Sony a profit. Some of that was the cost of the components, while some of it was the associated research and development costs. The PS4 won’t face those same issues.

With the exception of Nintendo, it is conventional wisdom that console manufacturers will take a loss on each unit sold, at least at launch. Manufacturing new hardware is expensive, from crafting the components that are often custom made, to the research expenses. The PS4 is likely to sell at a loss initially, but it is expected to be a very small one, as most of the costs leading up the manufacturing of the new system were much lower than the last time

“We will not generate anything like the losses we did for the PlayStation 3,” House told investors.

Sony’s CFO, Masaru Kato went on to explain that because the PS4 is using a design that utilizes standard PC chips rather than expensive custom components the PS3 used for its Cell processor, the cost is “much, much smaller.”

The biggest issue facing Sony’s game division this year will actually be the weakening yen and the U.S. dollar, which is increasing in value and is expected to continue to increase through March. Over the last few years, Sony has paid suppliers with the dollar instead of the yen, which was until recently much stronger. As the two currencies get closer in value, Sony’s profit margin changed to match, causing the predictions to shrink as well.