The PS3 had an extremely shaky start, launched prematurely to compete against the rival Xbox 360, it suffered major losses. The Sony gaming division lost close to $2.15B in FY07, since they were selling double the number of PS3s but at a loss.

Let me try and explain the “Funda”  to those who lack a few ounces of gaming grey. Most consoles are designed with a 4-6 year life cycle, although it is often streached to a staggering 10 year cycle (PS2). The consoles are designed with the latest technology and hence have a very high production rate. The consoles are sold at a loss initially so as to offer attaractive prices for the consumers. The PS3 was initially selling at $499 and $599 but the production cost was somewhere around $800, so the heavy losses. As per a report on Next-Gen:

While $3 billion is a hefty number, Sony did reduce losses year-on-year in the games segment, despite selling nearly twice as many consoles (again, at a loss) in FY08 as it did in FY07.

Sony attributed the segment’s year-on-year cost reduction of about $1 billion to “successful PS3 hardware cost reductions.”

The fact that Sony sold 267.4 million software units across PS3, PS2 and PSP also played a major role in offsetting hardware costs.

Sony CEO Howard Stringer recently said that restoring profitability to the company’s TV and games businesses is a top priority.