Sony's PlayStation 3 costs just $400 (£200) to make these days - about half of what the console cost to produce when it was launched in November 2006.

So claims Nikko Citigroup analyst Kota Ezawa, BusinessWeek reports. Ezawa puts the reduction down to increased volumes, cheaper components but most particularly much-reduced Cell processor and GPU fabrication costs thanks to improved yields.

Market watcher iSuppli took a PS3 to pieces in November 2006 and calculated that the cost of the components in the 60GB console was $840 - $241 more than Sony was asking punters to pay. Nvidia's Reality Synthesiser graphics chip contributed $129 to the total, the Cell chip a further $89. The Blu-ray Disc drive cost $125, iSuppli estimated.

Back then there was a shortage of blue laser diodes, a key component of both Blu-ray and HD DVD drives. That tightness eased mid-way through 2007, with Blu-ray hardware prices falling rapidly as a result.

Likewise, Sony and Toshiba have become better able to punch out more working Cells per wafer, with a proportionate reduction in the cost of each chip.

If Ezawa's correct in his analysis, that means Sony's making a decent profit on the $499 80GB PS3 and is probably doing the same on the $399 40GB version, because it contains fewer components.

But that's only part of the story, of course. Sony has to pay for assembly, distribution, marketing and advertising, and out of the retail price of each console its supply channel partners will take a cut. Sony needs to push down production costs further if it wants to make money on the hardware.

Software is more lucrative, but until there are many more PS3 owners out there buying games, Sony's cut from software sales isn't going to generate spectacular profits. Which is, of course, why the PS2 remains such an important product for Sony.