Sony's billion-dollar PS3 marvel

PlayStation 3 will cost Sony ONE BEEEEELLION DOLLARS according to financial analyst boffins...or to you £400

Analyst Merrill Lynch reckons development and production costs for PS3 during its first year of release could see Sony suffering a whopping $1.18bn loss on hardware, potentially lining up one of the biggest financial gambles in the history of consumer electronics.

According to reports, Merrill Lynch estimates that the cost of PS3's main components (BD-ROM drive, RSX and Cell chip) will set Sony back around $100 each, and then adding on the cost of the extra tech gubbins that'll make up the console the production cost rises to around $490 per machine.

And that's before anyone - Sony, the shops, the distributors - have added on any profits.

Merrill Lynch reckons that, at retail, PS3 will be priced 44,800 yen in Japan and in America $399. Factoring in these figures results in the $1.18 billion loss on hardware that Sony could potentially face in the first year of the next-gen console's release.

Companies having to bite the bullet and succumb to financial loss on hardware on new console launches is far from unusual, but Merrill Lynch suggests a challenge from Microsoft in the shape of a price slash of Xbox 360 when PS3 launches to retail could cause Sony further financial pain.

The Japanese giant could be looking at additional losses on hardware of over $700 million in PS3's second release year and around $450 million in its third.

But what matters for the consumer is the launch price. If Merrill Lynch's prediction of $399 for PS3 in America is on the money, then it's likely we'll be looking at the £400 mark here in the UK.