Sony on Thursday said it expects its game division to post a loss of 100 billion yen, or $817M in the current fiscal year for start-up costs related to the Playstation 3 video game system.

The PS3’s expensive components, which include the new Cell processor and the Blu-ray disc drive are large factors in the pending loss for the company.

In addition, the machine will be sold below cost in order to sell the device to mass market consumers in the holiday 2006 season.

Analysts estimate that the PS3 will cost Sony from $500 - $800 to manufacture. Many of its parts consist of cutting-edge technology will be manufactured on a large scale for the first time.

Sony is betting that high-definition games and movies will sell the product to a large audience, much like the last two Playstation consoles did in the previous ten years.

To date, Sony has remained the market share leader in home consoles with over 100M in sales each for the Playstation and Playstation 2.

The company entered the handheld market in 2004 with the PSP. However, it has seen slower sales against the less advanced Nintendo DS handheld in worldwide markets.