Sony have reduced the manufacturing cost of the PS3 by 70% according to Nobuyuki Oneda, Sony CEO and EVP: “The cost reduction since we introduced the PS3 is very substantial and this is on schedule. We don’t disclose how much of the PS3, specifically the cost deduction was achieved during the past two years. But that is on schedule.” Pushed further he admitted: “About 70%, roughly speaking,”
Obviously this gives Sony room for a price reduction and thus make the PS3 less uncompetitive.
The 70% reduction is nothing special here. Firstly Sony were forced to rip a lot out of the original machine, including hardware backwards compatibility, to reduce costs. Secondly Moores Law reduces semiconductor costs by half every two years. And thirdly the Bluray drive was new and expensive at PS3 launch, now it is a mass production part which must be costing them a tenth as much to make.