Sony announced it will give up the Playstation 3 models featuring 20Gb and 60Gb hard drives, in favor of a 40Gb model that's cheaper than both but lacks backwards compatibility, thus running only the latest games compiled for the gaming powerhouse. The new cost-effective console is priced at ¥39,980 ($364.50), which is less even than the 20GB model at ¥44,980.

Similar plans are allegedly also underway in the U.K, where Sony has began flushing 60GB inventory at a discounted price in favor of the single 40GB model. "We will continue to read and evaluate market trends and communicate with consumers to determine appropriate configurations for each territory," a company official said to PC World on Thursday.

The 40 GB PS3 has two USB ports instead of four and Sony ditched also the multi-memory card port. Unlike the 80 GB PS3, the 40 GB version model isn’t compatible with the PlayStation 2 games.

Just a few days ago, the Japanese company announced that during December it has sold 1,2 million PS3s in 39 days, from November 23 to December 31. Shortly after Thanksgiving weekend, Howard Stringer, Sony CEO, announced that PS3 is selling 200,000 units per week. The main problem Stringer has had to deal with since his 2005 appointment as a Sony CEO was the losses in the games department, where costs for developing the PS3 have grown too high and the sales of Nintendo’s Wii and Microsoft’s Xbox 360 have exceeded the PS3 sales.

Despite the hype generated by the holiday season, the revival of Sony’s gaming machine is based also on the drastic price cuts announced during October in November. Sony has also aggressively promoted PS3 as a Blu Ray player. Though, PS2 still managed to surpass its bigger brother and it sold 1,3 million units during the same period.

Apparently, Sony understood that while its gaming console holds the top spot when it comes to performance, its rivals were offering more bang for the buyers' bucks. It is quite clear that Sony will not give up on its PS3 and will push it to the market aggressively.

Meanwhile, the price wars between Sony, Nintendo and Microsoft have made last-generation consoles an affordable buy.