Posted by: Kenji Hall on October 18, 2007
It’s no coincidence that Sony’s decision to sell its production line for the high-powered Cell chip to Toshiba comes so soon after a cut in the price of its PlayStation 3 videogame console. By transferring control of the chip-making facility, Sony can cut semiconductor-related costs.
That’s not only good news for Sony’s semiconductor unit, which would have to keep throwing billions of dollars at new tech advances to squeeze more tiny transistors onto a single chip. It’s also a plus for the PS3 since chips account for a big chunk of the console’s production costs. Sony can now continue to lower PS3 prices without risking even bigger losses at its gaming unit, which could lose up to $1 billion this fiscal year.
I wrote about this a few weeks ago, when Sony and Toshiba were reportedly negotiating a deal. Here’s an excerpt:
The sale could bring Sony an estimated windfall of $870 million. In the best-case scenario, Sony would gain another benefit: With Toshiba’s expertise in production efficiency, Sony could get a cheaper price on chips that would lower the PS3’s costs. Sony now spends about $89 on each Cell chip, or about a tenth of the overall cost per console, market researcher iSuppli estimated in a teardown analysis last November. “The point is this would have the effect of driving down costs for Sony’s gaming division,” says Macquarie Securities analyst David Gibson.
Toshiba’s new plant, in Nagasaki on the southern island of Kyushu, will continue to only churn out chips for the PS3. The deal also includes graphics chips for the PS3, and the sale to Toshiba of an older chip plant for the previous-gen console, PS2, in nearby Oita.
At the time, it was merely an educated guess. But Sony basically confirmed this line of reasoning.
Sony Group will advance the high-performance semiconductors used for PlayStation while reducing costs by further strengthening its collaboration with its respective partner companies. These enhancements will continue to strengthen the leading capability of the PlayStation 3 system and Sony Group's overall PlayStation business
"We believe the production alliances that we have formed with IBM and Toshiba to manufacture high performance semiconductors for PlayStation by using state-of-the-art process technologies will lead to the advancement of the high-performance semiconductor business for PlayStation," said Yutaka Nakagawa, Executive Deputy President in charge of semiconductors at Sony.