Based on the individual cost of components, Merrill Lynch Japan Securities analysts think the company may take a beating on first year PS3 sales.

“You’re right, I did lose a million dollars last year. I expect to lose a million dollars this year. I expect to lose a million dollars *next* year. You know, Mr. Thatcher, at the rate of a million dollars a year, I’ll have to close this place in… 60 years.”

That’s not Howard Stringer talking of course, but a quote from the legendary Orson Welles film ‘Citizen Kane’. And Sony could be just an even bigger money-loser, according to Merrill Lynch.

The investment firm company says Sony could lose as much as $1.18 billion USD in the first year the PS3 hits the market. Breaking out components shows the PS3 cost would be about $494 per unit. The firm expects Sony to sell the PS3 for $399 each on release.

That price point could suffer some pressure if Microsoft decides to lower the price of its Xbox 360 when the PS3 arrives on shelves. Microsoft plans to release its newest game console in November of this year.

With a few months of sales bolstered by holiday numbers, Microsoft may be willing to take some losses of its own to gain a competitive edge.

Sony’s new console will incorporate a Blu-ray DVD drive, an IBM Cell processor, and a Nvidia RSX graphics chip, among other features. Sony Computer Entertainment president and gaming legend Ken Kutaragi doesn’t see a problem with the PS3 price point, according to an interview in Toyo Keizai, due to gamers wanting the latest Sony console when it becomes available.

David Utter is a staff writer for webproworld covering technology and business. Email him here.