Merrill Lynch: Users likely to prefer Xbox 360 over PS3

Microsoft Corp. is likely to win the next round of the game console fight against Sony Corp. based on a potentially huge cost difference that could see the Xbox 360 selling for half the price of a PlayStation 3 (PS3) by the end of next year, investment firm Merrill Lynch said in a Wednesday analysis.

Based on a breakdown of the parts being used inside the two game machines, Merrill Lynch said the “PS3 will not only be significantly more costly than Xbox 360 at launch, but will continue to operate at a cost disadvantage for several years.”

The investment banker said Sony’s PS3 is an impressive machine, but the costly components inside could raise the price of a PS3 to around US$500 when it launches in the spring of 2006. By then, the Xbox 360 could be selling for US$249, Merrill Lynch estimated.

Sony Computer Entertainment Inc. could not be reached for comment due to a public holiday in Japan.

Microsoft has announced two versions of the Xbox 360, a basic version for US$300 and a premium edition for US$400.

The lower cost could put as many as 10 million Xbox 360 game machines into users’ hands by the end of 2006, said Merrill Lynch.

“As volumes ramp up, Microsoft should see an improved ability to lower hardware costs,” said Merrill Lynch, making the Xbox 360 an even better deal for users. It would also encourage game developers to put their latest titles out more quickly, to capture the huge audience.

The biggest cost issue for the PS3 is the Cell processor, Merrill Lynch said. Although Sony hopes the new microprocessor architecture could find its way into many new products beyond just the PS3, thereby lowering its per chip cost, Merrill Lynch believes the Cell won’t gain much ground in other markets.

“Processor architectures have been in consolidation mode for the last 5 years, and we think it’s going to be difficult for Sony to find takers for Cell outside of the PS3,” the investment banking firm said.

One recent example of such consolidation was Apple Computer Inc.’s June decision to move its Macintosh computers to Intel Corp. processors by the end of 2007. The computer maker has been using PowerPC chips developed by IBM Corp. and Freescale Semiconductor Inc. for the past decade.

Heavy research costs and expensive manufacturing could cause the Cell to cost about US$160 per chip initially, Merrill Lynch said, compared to the US$100 for the PowerPC chips used in the Xbox 360.

The Blu-ray drive planned for the PS3 will also add about a US$75 cost disadvantage, Merrill Lynch said, compared to the DVD-ROM drive Microsoft plans to install in the Xbox 360.

Merrill Lynch also highlighted Sony’s weaker financial situation compared to the strong position at Microsoft Corp.

“All of this might not matter were Sony in a position to take large losses on the PS3, but the company’s financial situation raises questions about just how much money Sony is going to be willing to lose,” the investment firm said.

Meanwhile, Microsoft has a less expensive game console and likely a six-month lead over the PS3 in getting to market, Merrill Lynch said. Microsoft plans to launch the Xbox 360 on Nov. 22 in the U.S., followed by Europe on Dec. 2 and Japan on Dec. 10.

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