8 replies to this topic

[ComputerSpaceFan]

I am reading these stories about how Nintendo is losing money because they sell the 3DS below costnowadays and I see there are a few quotes that state: "Nintendo intends to stop selling the 3DS "below cost" (that is; at a reduced manufacturing cost) by the middle of the next financial year"

It has me wondering, does that mean 3DS'es are going to be cheaply made next year? I don't want to get a flimsy lower-quality one when I buy. I have been holding off till E3 to see if any kind of 3DS-lite announcement is made (practically all Nintendo blogs and podcasts recommend holding off till E3) but my predicition is Nintendo will really just talk Wii U at E3 and leave 3DS as it is for another year.

Given past experiences with hand helds, what do you folks think? Does "reduced manufacturing cost" mean we'll get crappy 3DS'es? My experience with Nintendo handhelds has been that they have always been of good quality. I'd hate that to change. Then again, they are in a bad economic situation (the link above is titled "Nintendo posts first annual loss" I'm not just bad-mouthing them here) so I wouldn't put it past them.

[maibock]

Being in manufacturing, "reduced manufacturing cost" can mean anything really. It can mean "ok ok you caught with a higher profit margin and thus we can reduce our manufacturing costs to give you a more competitive price". Can also mean using alternate, less expensive materials, perhaps resulting in a cheaper feeling unit, or a less reliable unit. Maybe it could mean that the manufacturing practices are more refined with experience and you can make things a lot more efficiently. Or in fact they're buying smarter and getting a better cost for buying in volume. Even finding a country with cheaper labor costs could result in a reduced manufacturing.

The way the article is worded, it seems it could also mean a higher selling price..

[godslabrat]

ComputerSpaceFan, on Thu Apr 26, 2012 8:48 AM, said:

It has me wondering, does that mean 3DS'es are going to be cheaply made next year? I don't want to get a flimsy lower-quality one when I buy. I have been holding off till E3 to see if any kind of 3DS-lite announcement is made (practically all Nintendo blogs and podcasts recommend holding off till E3) but my predicition is Nintendo will really just talk Wii U at E3 and leave 3DS as it is for another year.

Given past experiences with hand helds, what do you folks think? Does "reduced manufacturing cost" mean we'll get crappy 3DS'es? My experience with Nintendo handhelds has been that they have always been of good quality. I'd hate that to change. Then again, they are in a bad economic situation (the link above is titled "Nintendo posts first annual loss" I'm not just bad-mouthing them here) so I wouldn't put it past them.

If you're waiting until next year, I would continue to wait until next year.  Agreed, Nintendo's hardware has always been high quality, and I don't expect that to change... but there have been cases where a later unit was better in some ways and worse than others.  Witness the introduction of the GBA SP:  Better screen, but you needed a weird dongle for the headphones.  It was up to the customer to decide if the tradeoff was worth it... I wouldn't call either machine "poor quality", they just made some design changes.  Same way with the NES->NES2.  A somewhat more reliable connector, but the loss of A/V outs.  Meh.

The good thing is, you'll likely have plenty of old stock to choose from if you decide that you don't like the direction Nintendo takes with next year's 3DS.  Another trait about Nintendo is that their hardware transitions are pretty slow.

[Mord]

If they're selling at a loss now, and they want to stop doing that by next year, odds are that means they won't be dropping the price tag. Would be counterproductive.

[ComputerSpaceFan]

Mord, on Thu Apr 26, 2012 1:12 PM, said:

If they're selling at a loss now, and they want to stop doing that by next year, odds are that means they won't be dropping the price tag. Would be counterproductive.

True that, but my worry is they'll drop the quality since they can't drop the price.

[wood_jl]

Over time, the electronics themselves become cheaper to manufacture, as components are combined and costs reduced.  It doesn't necessarily mean a piece of shit is inevitable, although possibly.  Perhaps it'll all be on one chip at reduced cost, but the physical hardware will be the same.

[FastRobPlus]

Wood has it exactly right.  The idea behind consoles is that you plot the overall cost to manufacture a unit, including labor and logistics, then you project ways in which these costs will increase or decrease over time, then predict your sales over time.  If you do all this correctly, you can plot a price point where you lose money initially, make money towards the end, and break even overall.  In true “razors and blades” economics, you make money on the margins that you get selling accessories, games, DLC, etc.

Does the console become cheaper over time?  Yes.  Does it become lower quality over time?  Not necessarily.

Take one minor aspect of the Xbox 360 for example.  Here’s a link to an article I wrote years ago.
As you can see, the power supply went from 203 watt to 150 watt (it’s down to 135 now) over the course of a few years.  This is because the efficiency of some components improved over the years, yielding more efficient (and possibly quieter and more reliable) consoles that required less power.  In turn, the power supplies became lighter because they just didn’t need to be as big.  Even if you assume the cost to make these changes stayed constant, the overall weight of the console and power supply in the package went down which in turn reduced the shipping weight of the console, allowing the console to reach the stores a little more cheaply than before (ignoring global changes in the cost of freight.)  We saw this with Atari consoles and home computers very early on.  There was no FCC “class B” so Atari had to use a ton of metal in the shielding, yielding the original “heavy 6er” that cost a lot more than it should have, due in part that shelding - and it cost a lot more to ship.  Later, when "class B" was adopted, the Ataris became lighter with no impact on quality.  

It was a shock to see Nintendo choose to drop the 3DS price so much and so fast.  That may really cause them to lose money over the life of the handheld.  That said, they’re still going to make money overall because most of their money is coming from content for the device and the licensing fees.  They may also be privy to some information that we don’t have.  For example: they might know that production of a certain component is going to get much cheaper than previously thought.  I remember about 4 years back there was a new plastic extrusion process introduced that integrated the glossy coating and pigment into one pass much more cheaply than the two pass process used by most manufacturers.  So devices that use the “fingerprint magnet” glossy back plastic cases (think PS3 and HDTVs) suddenly became a little cheaper to produce.

[Mord]

ComputerSpaceFan, on Thu Apr 26, 2012 1:39 PM, said:

Mord, on Thu Apr 26, 2012 1:12 PM, said:

If they're selling at a loss now, and they want to stop doing that by next year, odds are that means they won't be dropping the price tag. Would be counterproductive.

True that, but my worry is they'll drop the quality since they can't drop the price.

Whether the quality will drop or not depends on how much they're trying to reduce the manufacturing cost. New processes or cheaper sources of materials can easily drop costs without actually affecting quality. You won't know until it's been released I'm afraid - I'd recommend waiting for the reviews after the new version is launched.

[ComputerSpaceFan]

FastRobPlus, on Thu Apr 26, 2012 2:54 PM, said:

Wood has it exactly right.  The idea behind consoles is that you plot the overall cost to manufacture a unit, including labor and logistics, then you project ways in which these costs will increase or decrease over time, then predict your sales over time.  If you do all this correctly, you can plot a price point where you lose money initially, make money towards the end, and break even overall.  In true “razors and blades” economics, you make money on the margins that you get selling accessories, games, DLC, etc.

Does the console become cheaper over time?  Yes.  Does it become lower quality over time?  Not necessarily.

Take one minor aspect of the Xbox 360 for example.  Here’s a link to an article I wrote years ago.
As you can see, the power supply went from 203 watt to 150 watt (it’s down to 135 now) over the course of a few years.  This is because the efficiency of some components improved over the years, yielding more efficient (and possibly quieter and more reliable) consoles that required less power.  In turn, the power supplies became lighter because they just didn’t need to be as big.  Even if you assume the cost to make these changes stayed constant, the overall weight of the console and power supply in the package went down which in turn reduced the shipping weight of the console, allowing the console to reach the stores a little more cheaply than before (ignoring global changes in the cost of freight.)  We saw this with Atari consoles and home computers very early on.  There was no FCC “class B” so Atari had to use a ton of metal in the shielding, yielding the original “heavy 6er” that cost a lot more than it should have, due in part that shelding - and it cost a lot more to ship.  Later, when "class B" was adopted, the Ataris became lighter with no impact on quality.  

It was a shock to see Nintendo choose to drop the 3DS price so much and so fast.  That may really cause them to lose money over the life of the handheld.  That said, they’re still going to make money overall because most of their money is coming from content for the device and the licensing fees.  They may also be privy to some information that we don’t have.  For example: they might know that production of a certain component is going to get much cheaper than previously thought.  I remember about 4 years back there was a new plastic extrusion process introduced that integrated the glossy coating and pigment into one pass much more cheaply than the two pass process used by most manufacturers.  So devices that use the “fingerprint magnet” glossy back plastic cases (think PS3 and HDTVs) suddenly became a little cheaper to produce.

Excellent insight, thanks FastRob, I am relieved and will wait for E3 now.