Xbox 360 finally in the black (PS3? No.)
In an article detailing the overall parts cost for the PS3, iSupply reveals that Microsoft is no longer losing money on the Xbox 360. Last year, the company reported that Microsoft lost $126 dollars on every 360 sold. Due to a reduction in overall component costs, iSupply estimates that it now costs Microsoft $323.30 per Premium Xbox 360 manufactured. Thus, Microsoft actually earns $75.70 on each unit sold.
On the other end of the spectrum, Sony loses a lot of cash on each PS3. The high end PS3 costs $840.35 to build, losing Sony $241.35 per console. The cheaper PS3 actually costs nearly the same to produce, so Sony takes a hit of $306.85. According to the article, the primary pricing differences between the 360 and PS3 are the processors, and of course, Blu-ray. The PS3's motherboard and Blu-ray drive cost Sony $500, whereas the 360's motherboard and DVD drive cost Microsoft $200 -- down from $370 when the 360 launched. Naturally, Sony's costs will decline over time -- especially if Blu-ray is adopted.
At any rate, we're happy that Microsoft is finally making money on the 360, because that means we get a price drop, right? Right?
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Reader Comments(Page 1)
2. I would think that Microsoft would lower the price when they start to break even with the 360. If you do the math then we can expect a price drop around this time next year if not sooner.
Microsoft lost alot of money on the original xbox, they are sure not to make the same mistake.
Posted at 6:48PM on Nov 16th 2006 by Scott
3. MS has zero incentive to drop their price until demand for the 360 starts to decline, or the PS3 price falls below $600.
MS doesn't have to cut prices until Sony does, and even then, MS doesn't really have to drop prices until the PS3's price drops below the XBox's.
Posted at 6:48PM on Nov 16th 2006 by Measure
"Microsoft lost alot of money on the original xbox, they are sure not to make the same mistake".
Make no bones about it, MS knew what they were doing when they were losing money. They were thinking about how they were going to stomp sony in the console war like they are right now, and start making money. The original xbox was more of an investment in the future than anything else.
Posted at 6:59PM on Nov 16th 2006 by jasonb
5. MS did what they had to do to get into the console business they didnt not have time to create their own IP so had to buy off the shelf from nvidias and intel etc which meant they could cut the costs
with 360 they own the IP and can reap the benefits
Posted at 7:34PM on Nov 16th 2006 by mike
6. Dang it, I just glanced at the title and thought it meant that a new 360 was coming out in the COLOR black
Posted at 7:45PM on Nov 16th 2006 by northface
7. Also remember to take into account the money that the retailers get as incentives for selling the 360s. Microsoft sells the 360s to the stores for less than $400
Posted at 7:52PM on Nov 16th 2006 by daniel
8. Pretty dumb of MS not to cut price. They are in a perfect position right now to dominate the market with a $300 premium console.
360 has some good games but not enough to win people over in mass. Their sales have been stagnating lately and they need something to keep up with PS3 hype over the holidays (doesnt matter if you can get one or not, if someone wants a PS3, they wont settle).
At least they should bundle in some games for the 400 dollar one (which I think they are doing...)
Come on Peter Moore. Remember the dreamcast!
Posted at 7:52PM on Nov 16th 2006 by jc
9. The sole fact that a 360 sale is now generating profit doesn't mean all previous losses are recouped, so I don't see why they would lower the price on this only observation...
Posted at 7:59PM on Nov 16th 2006 by JT
10. I don't think Microsoft has a very good reason to drop the price of the 360 at this point--it is still at least $100 cheaper than their stiffest competition. This is, unless you do backwards math to make the 360 out to be more expensive than the PS3 (wait, you need this, and this and this just to be _like_ the PS3!). Most people wont make those connections (even if illogical), so the 360 does have the price advantage.
Additionally, dropping price could signal that the 360 isn't an equivalent of the PS3--it'd be as good as Microsoft saying it's an inferior good. Plenty of people think that the PS3 is miles ahead of the 360 power wise, when the actual numbers just don't match that.
That being said, I think $250-300 is the sweet spot for purchasing a console. If I didn't run into some unexpected money, I would have waited for the price to come down on the premium system.
Posted at 8:10PM on Nov 16th 2006 by Justin
11. Yup, it was a long term strategy to drop a bunch of cash on the XBox. Besides, all the money is made in licensing the games, peripherals and subscriptions to the Live service.
Posted at 8:32PM on Nov 16th 2006 by King Keepo
12. Please keep in mind that iSuppli doesn't have access to the contracts that Microsoft and Sony have with the parts manufacturers; I'd guess that the parts are most likely less expensive for both companies than they estimate. Also, remember that once the parts are aquired, the console doesn't stop costing the companies money, they still have to be assembled, packaged, and shipped to retailers; not to mention warehousing costs in-between these steps. And don't forget that the stores like to make money too. Granted the markup isn't huge, but they do get their cut, so long story short, MS is still losing money on every 360.
As for price drops? They have no incentive to do so. The console is barely a year old, and Sony's console already costs a good $200 more. My guess is we're going to see a price drop only after one of three events: Nintendo does as well as everyone's hoping, and becomes a real threat; Sony works out the mfg kinks and PS3s are regularly stocked on store shelves and actually moving; or Sony has a price drop. Don't expect one otherwise though, what incentive do they have? They're already the least expensive high-def gaming system on the block.
Posted at 9:15PM on Nov 16th 2006 by AoE
13. the 360 is not yet in the black...Its not loosing a couple hundred per ceonsole anymore.....its down to a little over 70 dollars lost per console sold...much better then it was just a year ago...so sometime on the middle of 07', they will reach black....and hopefully to celebrate that achievment...they will make 360's black...lol.
Posted at 11:02PM on Nov 16th 2006 by Murc
14. I said it a year ago, Microsoft would be missing a once in a lifetime opportunity, if they did not offer a special deal/bundle or new price by the time both the PS3 and Wii launched. Obviously they don't have to, and they're counting on having a great Christmas, now that they have supply, which is something they didn't enjoy last year. Curiously, some retailers are offering some better bundles/price points anyway.
Posted at 9:52AM on Nov 17th 2006 by nick
15. Microsoft is not making 75.70 on each 360 sold. That's just the difference between manufacturing costs and MSRP. I'm guessing that retailers are making between $5 and $10 on each one. I would imagine that Microsoft is either just breaking even or is now losing very little on each console now.
Posted at 11:13PM on Nov 18th 2006 by bynary
1. I dont think we'll be seeing a price drop until MS is able to drop the cost of a 360 some more. When they start to make about $100-$150 per console i think we'll see a drop. At the minute they are just getting back some of the money they lost, when the numbers start to balance out they'll drop the price.
That is unless sales drop then i could see a price drop coming sooner to try and get as many sold as possible, but MS wont be losing any money on console sales until the next generation.
Posted at 6:39PM on Nov 16th 2006 by KineticOnline