In a reversal from the current generation of consoles, it looks like Microsoft will be producing Xbox 360 boxes for less than Sony can produce PS3 boxes. According to Merrill Lynch.

“…The PS3 will not only be significantly more costly than Xbox 360 at launch, but will continue to operate at a cost disadvantage for several years. … We think that the Xbox 360 could be selling at half the price of PS3 in the latter half of 2006.”

“…Our analysis indicates that Microsoft has a significant advantage in terms of cost. Taking Sony’s weakened financial condition and Microsoft’s deep pockets into consideration, we conclude that Microsoft’s Xbox 360 should emerge as the early winner in the next round of the game console wars.”

“Competitive pricing [for Microsoft] could hurt margins for Microsoft in the near term, but we think that Microsoft has the potential to exit 2006 with an installed base of 10 million units, with all that implies for more profitable software sales for 2007.”

Of course it’ll help that Microsoft is so huge and has so much money that it doesn’t blink at the $4 billion dollar black hole the current Xbox has left in Microsoft’s coffers.

Merrill Lynch estimates that the cost at launch of the PS3 will be $495 and after 3 years it’ll cost $195. As for the Xbox 360, it’ll cost $340 at launch and $145 3 years later. So that’s a $155 cost difference at launch and $50 later.

Does that mean we can expect the PS3 to cost $455 at launch? (The price of the Xbox 360 core system at launch, plus the cost difference.) At $455, Sony would be taking the same loss as Microsoft - $40. But Sony and Microsoft are two totally different companies, so to assume Sony would price the PS3 just to take the same loss is absurd.

So who wants to start putting down their price guess for the PS3? I’ll pick $439. As good a number as any. Anyone else care to join in the conjecture?

Next Generation - Xbox 360 “Half the Price of PS3″ by Late 2006