Gamespot News is reporting that the Sony Playstation 3 will cost Sony $900 to produce, and that the release is still a year away.

“Our updated analysis indicates that the initial bill of [production] materials for PS3 could approach $900,” read the report. The report said that the production cost of a single Cell processor will be $230 at launch, with the Blu-ray drive setting Sony back $350 per unit. However, the $900 price tag presumably includes a $100 optional hard drive, as a breakdown of component costs in the report totals just $795.

If the $900 estimate is correct, that means the PS3 would have to sell for around $775-$800 to maintain a $125-$100 per-unit-loss similar to that of Microsoft’s Xbox 360. If the $795 estimate is correct, the console could sell for around $699–within the range recently forecast by a group of analysts and developers polled by CNN/Money.

Merrill Lynch expects PS3 production costs will start falling after 2007, when Sony can shift the Cell chip’s manufacture from the complex 90nm process to the more cost-effective 65mn process. Scaling Blu-ray to other devices will also bring down the drive’s price. Merrill Lynch predicts that the PS3’s production cost will fall to $320 in the three years after its launch, by which time the Cell will only cost $60 per unit and the Blu-ray drive $100 per unit.