Sony now says it will cut the PS3 retail pricing by $100 to $499 in the US. There is no reason to believe the the cut will extend to other markets if its works. The New York Times speculates that the move may be in part because of hardware problems with the Microsoft (NASDAQ: MSFT) Xbox 360, but Sony has a much better reason.
Sales of PS3 in markets from Japan to the US to the UK have fallen well behind the Nintendo Wii and Xbox, both of which are priced below PS3. Sony has hoped that sales will pick up as new game titles come to market. So far, there is little evidence of that. Analysts also believe that the component prices of the PS3 have dropped as Sony produces more units. If so, a price cut will not hurt gross margins.
Whatever Sony's thinking may be, getting out of third place will be tough.
Douglas A. McIntyre is a partner at 24/7 Wall St.