In his EPTE newsletter this week, old friend Dominique Numakura takes aim at the practice of equipment teardowns.
Specifically, Dominique takes apart a recent analysis that concluded concluded the manufacturing cost for Sony’s PS3 is over $800, some 60% over retail, while that of competitor Microsoft’s X Box 360 is 19% less than the recommended retail price of $299. In short, claims the report, Sony loses $300 per unit while Microsoft turns a $75.70 profit.
Dominique notes the cost analysis tables used varied substantially from typical cost tables used by manufacturers, omitting for instance processing yields, indirect manufacturing costs and retail costs, among others. He also pointed out that the component price estimates were highly suspect, as these tend to be closely guarded by suppliers.
But the concern, as he notes, is that financial advisors and other persons of influence might take the report at face value and undervalue or overvalue the companies as a result.
Something to consider the next time you pick up a stock watcher’s report.