Sony close to making a profit on PlayStation 4

Tuesday, 19 Nov 2013 | 9:59 PM ET
A customer purchases a Sony Playstation 4.
Getty Images
A customer purchases a Sony Playstation 4.

After selling several versions of its PlayStation 3 at a loss over the past seven years, Sony appears to be on a more profitable path with its latest gaming console, according to IHS.

A teardown analysis of Sony's PlayStation 4 shows the electronics maker has designed a console with production costs that are lower than its selling price.

The cost of components and manufacturing expenses for the PlayStation 4 amounts to $372 - $18 lower than the console's $399 retail price, according to the research firm.

"When other expenses are tallied, Sony initially will still take a loss on each console sold. But the relatively low BOM [bill of materials] of the PlayStation 4 will allow the company to break even or attain profitability in the future as the hardware costs undergo normal declines," IHS said.

(Read more: Sony sells more than 1 million PS4 units in 24 hours)

Sony: Gaming consoles are buzzing
Damian Thong, Senior Analyst, Japan Technology at Macquarie Securities tells CNBC's Cash Flow that gaming consoles have enjoyed a resurgence for the first time in years.

In the case of the Playstation 3, component costs for most of the different versions of the console were in excess of the retail prices, in some cases by more than $100, according to IHS.

"Although Sony brought the PlayStation 3's costs down significantly during its lifetime, the company's intent was never to make money on the hardware, but rather to profit through sales of games and content," said Andrew Rassweiler, senior director, cost benchmarking services for IHS.

"This time, Sony is on a greatly shortened path to the hardware break-even point, or even profitability, with its cost-conscious PlayStation 4 design," he added.

(Read more: PS4 and Xbox One neck-and-neck in games console race)

The biggest area of cost reduction is in the optical drive, due to the significant price erosion in the product over the past four years.

The cost of the device - which uses a laser to read or write information on a disc - is $28, compared with $66 in the CECH-2001A PlayStation 3 model, which was shipped in 2009.

Despite reports of glitches in the recent days - including a blinking blue light on the new consoles - Sony has seen robust sales of its PlayStation 4 since its launch in North America on November 15.

(Read more: Blue-light problems for Sony's PlayStation 4)

It sold 1 million units in the first 24 hours of availability in the United States and Canada. The company is expected to release the console in Europe and Latin America this Friday and in Japan next February.

—By CNBC's Ansuya Harjani; Follow her on Twitter: @Ansuya_H

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