• BusinessWeek, Thursday, November 16, 2006 12:30 PM

Sony releases the PlayStation 3 tomorrow, but you won't be getting one unless you pre-ordered several months ago. Manufacturing the powerful system has proven to be a big problem--and a big cost--for the electronics giant.

Sony really needs the PS3 to be a hit; failure could literally bankrupt the company, which has had a particularly bad year. Remember the notebook battery recall? That was Sony, and it was the largest in history. Declining overall profits have resulted in the company laying off 20,000 employees in the last two years.

There's no way the PS3 can lift the company out of the doldrums right away. For one thing, Sony knows it will lose money retailing the console at $600 a pop; each unit actually costs $840 to build, according to video-game industry monitor iSuppli. That price, by the way, doesn't include marketing expenses.

The idea is to make the money back on the sale of games, and hopefully, some incremental ad revenue on the more popular games. Meaning: Sony really needs to sell a ton of units, like its PS2, which sold 100 million worldwide. Meanwhile, rival Microsoft, with its year-long head-start, is nearly profitable with the Xbox 360, and could sell as many as 10 million units by the end of the year. Nintendo, Sony's other rival, is going after a younger market with the Wii, which sells for $250 and is winning rave reviews. That system debuts this weekend.

Read the whole story at BusinessWeek »