Blue Laser Costs Down

Blue Laser Costs Coming Down; Could PS3 Price Cut Be Far Behind?

Sony is ramping up blue laser diode capacity for its Blu-ray players much faster than we anticipated, and the costs are coming down. A price drop on the PS3 this year is starting to seem more and more likely. Wedbush Morgan analyst Michael Pachter tells GameDaily BIZ that PS3 could cost 100 dollars less by mid-year.

The Blu-ray drive in the PlayStation 3 has been a source of much contention among industry observers. The inclusion of Blu-ray in the PS3 is one of the main reasons the console is being sold for $600. But as with any product, economies of scale should help to eventually bring costs down.

With Blu-ray, however, it could be coming faster than we think. Sony's Sony Shiroishi Semiconductor Inc. subsidiary recently announced that as of April they established an industry-leading monthly production capacity of 1.7 million blue-violet laser diodes. Moreover, Shiroishi "has already made preparations to further reinforce production capacity based on future demand." Sony would probably claim that they're easily winning the next-gen movie format war, with Blu-ray outselling HD DVD more than 2 to 1, and the company believes that demand for Blu-ray will only increase, whether through PS3 adoption or standalone Blu-ray players.

"I'd guess that Sony could squeeze a hundred dollars out of [PS3's] cost by mid-year, maybe more." Michael Pachter ]

Because of this anticipated demand Sony said it already installed front-end wafer process equipment capable of producing 5 million blue-violet laser diodes. This would be for BD playback only, not BD recorders, but that's all that's needed for the PS3. Along with this boost in production, Sony expects that starting this June blue-violet laser diodes will only cost 900 to 1,000 yen (meaning only a bit over $8 per diode). The Blu-ray drive itself was estimated by iSuppli last year to cost Sony around $125 per unit, but as a new component the blue laser diodes likely accounted for a good chunk of the cost (especially during a time when they were in short supply).

Wedbush Morgan Securities analyst Michael Pachter is confident that this will lead to a price cut on the expensive PS3. "Yes, it means that Sony is definitely in a position to cut price," he told GameDaily BIZ. "God knows whether they will, but lower costs usually lead to lower prices. The right question to ask is whether the full bill of materials is below $499, allowing them to cut price and still avoid losing money. I'm not competent to answer whether it is, but I am competent to say that when cost is below $499, we should look for a cut to that level.

"The point is that if they're ramping capacity to [5 million diodes], they probably are coming down the cost curve for MPEG chips, dedicated disc drive processors, and every other component. Hard to say for sure, but I'd guess that Sony could squeeze a hundred dollars out of its cost by mid-year, maybe more. The question is whether this gets them to breakeven at $599, or allows them to cut price."

"My guess is that you will see a price cut this year," he continued. "I think that the introduction of the Xbox 360 Elite gives Sony an opportunity to cut price and claim that they offer Blu-ray for only $20 more. Again, God knows if they will do this, but I'd say it's far more likely given the rapid decline in [cost of] Blu-ray laser diodes."

by James Brightman

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