A recent Bloomberg report has attracted a lot of attention: it suggests that Sony is struggling to manage production of the PlayStation 5, with the result that the $ 399 price target that characterized the launch of the PS4 and the PS4 Pro might not be viable for the next-gen console. Bloomberg says the current cost of production per unit is at least $ 470. But is this a reliable indication? Next generation consoles really more expensive to launch than the current generation?

The price of console hardware has been a topic we’ve covered in the past in Digital Foundry, as the economy surrounding the consumer electronics market has recently faced increasing challenges from console makers, while the pace of technological innovation has slowed considerably.

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We strongly believe that the hardware for the next generation consoles, from Sony and Microsoft, will be excellent. Inevitably, however, providing a true generational leap comes at a cost. SSDs are a key innovation and we will have top-notch desktop processors. While we can’t expect an 8x increase in storage capacity like the current generation has seen, newer consoles will almost certainly install 16GB of GDDR6. Speaking of graphics power, the arrival of improved consoles (PS4 Pro and Xbox One X) has mixed the waters and somewhat diluted the concept of a true generational leap.

Let’s put it this way. In 2013, the PlayStation 4 was the most powerful console on the market with 1.84 teraflops of GPU computing power. If the AMD test leak of December 2019 proves to be reliable, with its PS5 9.2TF, it would offer a 5-fold increase in raw power, and this before inserting the optimizations and improvements brought by the new Navi architecture in the equation. This would ensure a real generational leap, but with PS4 Pro and Xbox One X on the market, there’s an obstacle as big as a rock, because it’s of these consoles that users expect a dramatic increase in performance. It doesn’t help that the standard resolution in 2013 is 1080p, while in 2020 it has become 4K.

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The pressure on the production costs of the next generation consoles comes from all directions. First of all, the central processor (the SoC) is manufactured at 7nm, and although the significant “cost per transistor” is considerably lower, the production costs of the silicon wafers are much higher, at least according to these informations. indicating that a processor with the same occupied area in the dice costs 66% more than processors produced with a 16nmFF process mounted on PS4 Pro and Xbox One X. We can only guess the size of the PS5 dice, but Microsoft reports that The Xbox Series X chip is bigger than any other product before. Obviously, it is hoped that the large production volumes that are preparing to start Sony and Microsoft will help bring prices down.

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The Bloomberg report says memory and storage costs are higher than expected. Nothing official has been revealed yet, but we expect the X and PS5 series to come out with 16GB of GDDR6, a figure higher than any graphics card on the market (except the Radeon 7, which costs $ 700). Even before a possible shortage of stocks of materials for production, we are faced with very expensive components. As for storage size, we expect both consoles will come out with 1TB SSDs. Fortunately, prices for NAND memories are plummeting and we expect Sony and Microsoft to have secured production supplies well in. advance. Compared to today’s mechanical drive solutions for consoles, the investment is much more expensive in this case.

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Bloomberg is also talking about a bizarre price-cooling solution for a dollar a unit. We would expect the price to be much higher than that, especially for the Xbox Series X which has a vapor chamber heater. We’re expecting more expensive heatsinks simply because if AMD’s test leaks are reliable, the PS5 will ride a 2.0GHz GPU, a clock rate that’s extremely difficult to maintain on current Navi PC GPUs. We also believe that Sony and Microsoft want to compress every nanometer of silicon to the max given the high production costs, pulling the neck at as many frequencies as possible.

So getting a generational leap in performance is sure to come at a steep price. A system on a chip produced at 7nm of size equivalent to that of PS4 Pro or Xbox One X, will be much more expensive to produce; SSDs are more expensive than mechanical HDs; doubling the memory inflates the bill, and to this must be added the unknown of the innovative cooling system. Compare it to the Xbox One X launched by Microsoft in 2017 – it was a 360mm square silicon chip paired with 12GB of GDDR5 and a mechanical hard drive. On this occasion, Phil Spencer revealed that Microsoft does not earn a single dollar from the sale of each unit, with a loss of material recovered elsewhere in the Xbox ecosystem.

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Considering all this, the idea that the X Series or the PS5 could launch for $ 399 seems really unlikely. Technology and prices have changed since 2017, but a look at the costs of the PC GPU market suggests that it hasn’t come a long way. An AMD RX 5600 XT with 6 GB of GDDR6 and a 251 mm chip2 it still costs $ 280, while an RX 5700 based on a higher class GPU and produced with the same process but with 2GB of VRAM costs over $ 300. Again, it should be noted that high production volumes should guarantee cheaper prices for Sony and Microsoft, but the situation still raises doubts.

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However, even if achieving the most attractive price target seems impossible, and even if the PS5 has a production cost of $ 450 as Bloomberg says, Sony would be perfectly able to sell it for $ 399 and the reason is very simple: the additional revenue of the PlayStation ecosystem is much higher than in 2013.

Bloomberg’s idea that the retail market price is as low as $ 470 is based on costs in 2013, but at the time, the way games were sold gave Sony and Microsoft more leeway. . Digital sales could very well reach 60% of the total, an unthinkable situation in 2013. With physical stores frozen, platform managers earn more for every game sold, and at the launch of the console the console / software ratio could be very high. . And then, in 2013, Sony was still setting up the PlayStation Plus, and the service wasn’t as basic as it is today. By deciding the price of a console at launch, Sony can rely on revenue from annual service subscriptions to limit the launch of a console that is sold at a loss.

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In practice, Sony is able to charge a higher aggressive introductory price than in the past. But despite this, there are some interesting observations indicating that prices will go up. Specifically, the very existence of the Microsoft console called Lockhart.

Phil Spencer gave advice regarding the development of more than one Xbox console during E3 2018, and it seems Lockhart’s design aims to sacrifice render resolution (and only resolution) to ensure a price tag of lower sale. At the moment, there are no official statements on this and Microsoft is focusing only on the X Series, but it’s not hard to imagine Lockhart’s core concept. Aiming for a lower render resolution, the machine requires a much less powerful GPU (4TF if the leaks are true), a slower processor, and a reduction in the amount of VRAM (12 GB instead of 16 GB). And maybe Microsoft could decide to insert a less efficient SSD (hopefully that doesn’t cut it off entirely in favor of a hard drive), to keep costs down even further.

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Last week, we created a Virtual Console GPU by modeling a PC graphics card and simulating console workloads, and based on our testing the idea could work just fine, if we think the PlayStation 5 with a potential of 9.2TF points to a dynamic 4K or 4K. Scalability between different resolutions looks promising, but we think the key point is this: If there weren’t concerns about the production costs of next-gen consoles or the selling price to consumers, Lockhart would have had no reason to exist. in the development cycle of Project Scarlett.

As for the price of the PS5 and X Series, we think it will be difficult, but that’s not the problem: DRAM or NAND power issues won’t define the price. Console makers drive down manufacturing costs throughout the build and in the context of the entire ecosystem. In addition, Sony and Microsoft will face this new generation with more confidence than the previous one. Around this time, everyone gave up selling PCs and consoles due to the boom in the mobile gaming market. Seven years later, the console market is still healthy, and platform managers don’t need to adopt conservative designs.

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Ultimately, we believe Bloomberg’s understanding of the PS5’s price intuition can only be substantiated when Sony has a more solid idea of ​​Microsoft’s plans. Obviously, Microsoft can do the same. But it’s not so much the component inventory or production costs that are the real issue here, but rather the study of the opposing company’s strategy. Who will take the first step in announcing the prize? Fierce competition should guarantee aggressive pricing, but ultimately everything that has emerged so far indicates that the PS5 and Xbox Series X will be systems worth the money.

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