Microsoft again makes losses with the new Xbox

Written by Wil Harris

November 28, 2005 | 10:12

Tags: #360 #console #live #loss #price #semiconductors

Companies: #microsoft

News competition winner MrWillyWonka writes:

It is known that Sony, Nintendo and Microsoft sell their consoles at a lower price than it costs to make them, which is why many think console accessories are overpriced - they're just a way of covering losses. The original Xbox made an average loss of $125 per console, and new research shows that Microsoft is also experiencing a loss with the XBox 360, again at around $125 per console.

BusinessWeek took apart the console to analyse the cost of each component, and they found that the console itself costs $471 to make. With the selling price at $470 you are also getting the controllers, power supply, cables and accessories which come in the bundle at that price, meaning Microsoft is making a loss on the cost of those components.

From BW:

[i]"It's certainly not going to help Microsoft reverse the trend of losses in its home-entertainment segment. In the fiscal year ended June 30, that unit lost $391 million on sales just shy of $3.25 billion. That's a little more than 8% of Microsoft's total sales of $39.8 billion".

Yet Microsoft still make the consoles, so that they can be number two in the console market.

72% of the cost of creating the XBox 360 goes on semiconductors (silicon) alone, and $106 goes towards the CPU and $141 to ATI for the graphics card. Whether ATI is making a profit on these cards is questionable, however BusinessWeek believes Microsoft will eventually cut material costs by $50 per console with increased efficiency and deals on mass buying of materials.

It is also estimated that the PS3 will cost $600 to make, which is $129 or more than the XBox 360, especially because Sony plans to integrate the new technology, Blu-ray into the PS3. We could be seeing some very high prices for the PS3, and possibly even higher prices for future consoles.

Check out the full report over at Business Week and then drop by the forums to give us your thoughts on this story.
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