Sony's production costs on the PlayStation 3 are set to drop once again. During a session at the International Solid-State Circuits Conference (ISSCC) yesterday IBM, which manufactures the PS3's Cell processor, announced that it is switching production of the chip to a 45nm process.

The new chip will use 40% less power than its 65nm predecessor, with its size reduced by 34%. The process is more efficient and cost effective. This will definitely lead to stories about PS3 price cuts going through the roof.

Before we too jump up and down in excitement, SPOnG would like to point something out. The new chip will almost certainly contribute to a price cut - at some point down the line. It's a natural process throughout a console's life cycle for component costs to come down and for retail prices to follow suit. It does not mean, however, that a price cut is imminent.

Back in November, Sony (or, more accurately, Toshiba) reportedly got the size of its RSX graphics processor down from a 90nm process to a 65nm process.

If you're scratching your head and wondering how shaving a few almost incomprehensibly minute units of measurement off a chip's size could result in a price cut, it's mostly about cooling. Basically, the tiny chip generates an obscene amount of heat and much of the PS3's architecture is taken up by a cooling system. Less heat = smaller cooling system = lower production costs.

The other major factor is the production yield. In a nutshell, a smaller production process means less rejected chips, making production more cost effective. You can find a more in-depth discussion of how chip size and price go together here.

^{Source: Ars Technica}