So how much does Microsoft lose per 360 sold?
Portelligent estimates that a Core System cost Microsoft $310 to produce. However, the press releases errs in Samsung's SDRAM size (they note 64MB; the console has 512MB of RAM), and we not sure if that is a typo in the press release or an analysis-altering slip-up--we are awaiting confirmation from Portelligent and will update as soon as we know. If accurate, though, that means Microsoft is losing very little per unit sold, and just one game purchased (even Geometry Wars) makes the console profitable. As time passes, the parts used to make the console will become less expensive, and Microsoft will have no problem making frequent price drops while still turning a profit.
Epobirs writes, This means when Microsoft gets a major revision of the chipset at the 65 nm process node it could possibly break even on console after a reduction of the retail price. Not only would the cost of the silicon go down considerably but also the reduction in power draw and cooling needs would allow for cost reductions in those components as well. (Whether they'd choose to produce a smaller version of the 360 is another issue. They might save that for 45 or 32 nm.)
Even if the Xbox 360 fails to overtake Sony's PlayStation 3 in market share, the console could end up being a financial success for Microsoft, much in the way Nintendo can claim a profit for every GameCube sold (despite being 3rd place in worldwide console sales). Any thoughts?
Reader Comments (Page 1 of 1)
VaultedCeilings @ Mar 28th 2006 6:37PM
Is that $310 before or after labour, marketing and research costs have been added? Because while it is very heartening to see that Microsoft isn't taking a huge loss it could also be misleading without those figures factored in. After all Microsoft spends/spent a lot of money on these things (rightfully so) and console sales need to recoup that cost as well as that of the physical hardware.
don_sf @ Mar 28th 2006 6:40PM
u took my comment away joystiq, i love xbox 360 v ps3 fights. its amazing how ps3 always wins huh
DarkFlash @ Mar 28th 2006 6:42PM
If this cost analysis is accurate, Microsoft must be making a profit on the Xbox 360 standard system. There's no way a 20GB hard drive, a wireless controller, a cheap headset, and some cables add up to that extra $90.
don_sf @ Mar 28th 2006 6:43PM
ok il say it less ofensive:
xbox 180/1.5/housing project/big black box lost 4 billion. say something bout the console?
GTgamer @ Mar 28th 2006 6:43PM
Well I finally got to add to their loss/profit per unit during lunch today. Likely, I'll be getting a couple of accessories soon too.
Since Microsoft actually owns and controls a lot of the technology this time around, they should find trimming costs a lot easier during the 360's lifespan.
jason w @ Mar 28th 2006 6:44PM
I dont really care about how much the console cost for the company to make, all i care about is how much it cost me to buy. If this is true there most likley will be a price drop around the time the ps3 hits.
SuicideNinja @ Mar 28th 2006 6:48PM
don_sf, how exactly is this a 360 vs PS3 fight?
Personally, I think the company that makes a profit the whole time is the so-called winner. Nintendo may not push the most units, but their pockets have never been empty.
I hope the 360 does well for Microsoft. They did a great job with the console, and deserve to profit from it. We'll see how Sony and Nintendo fair when they release their consoles.
LaughingTarget @ Mar 28th 2006 6:50PM
VaultedCeilings has a point here. These are only the costs of the material components of the unit.
The cost of a unit is typically broken down into three components:
Direct Materials
Direct Labor
Overhead
Marketing and such usually doesn't get thrown into the mix because it is a sunk cost, or one that is not determined by the number of units produced. This stuff is usually covered under the markup.
The direct materials for the 360 are running $310 for the Core, but it will cost more than that to produce. Since these things are being assembled in Mexico, though, the direct labor component is unlikely to add all that much for the production of each unit. If you pay a Mexican laborer $2/hour and they can pump out 5 of them each hour (estimated by me based on how fast I can put together a personal computer's hardware aspects), then you only add $0.40 per unit. So you're up to $310.40 per unit.
Because it is produced in Mexico, the overhead is also likely to be fairly low. The Microsoft has access to cheaper electricity, zero benefits requirements for laborers, cheaper inspectors of finished units, but a slightly higher cost in loss due to error (cheaper labor tends to result in more broken raw materials and the like). The only cost that won't be cheaper than in the States would be the factory manager, which is usually an American manager sent to Mexico (in most business cases American managers are sent to oversee foreign direct investment plants to keep the factory under direct control), but even $90k a year won't add much when you're talking about millions of units produced. So, because of this, we're also looking at a fairly insignificant increase in per-unit costs based on overhead, probably another $3. So, it is likely that the units will cost around $314 per unit when it finally comes off the production line.
If these numbers are accurate, the inclusion of a $20 hard drive to the premium system which adds no additional install time to snap it in place might actually indicate that Microsoft makes a profit on the Premium units at their $400 selling price.
WRT @ Mar 28th 2006 6:51PM
$310 usd for core system sounds about right, if you look at what you're getting.
In IGN's review of Oblivion, they put it in line with a mid-range PC. An ATI card from fall 2005 and a triple core PPC chip. It's still good value for $310, but basically you get what you pay for.
"Unfortunately, the graphics aren't without their faults. Though you can see extremely far into the distance, far off hills will be blanketed in low resolution textures that otherwise mar a beautiful scene. Loading times may also be a bother. Not the loading times when entering doors or fast traveling around the world, those are entirely manageable. It's the loading that occurs when traveling across the land that will cause the Xbox 360 version to stutter, as well as any mid to lower end PC. The game needs to load in grass and environmental objects at regular intervals, and the ensuing pause in the action may turn some off. There's also a very visible amount of pop-in, as grass, rocks and even houses appear at the edges of your vision."
http://pc.ign.com/articles/698/698405p4.html
Ben Hollis @ Mar 28th 2006 6:53PM
#4 - Yes. It says that the console was expensive to produce.
boots (former bd) @ Mar 28th 2006 6:58PM
don_sf:
They lost 5 billion, not 4. lol
Anyway, just say "Blu-ray" or "Backwards Compatibility", and you'll keep Xbox fanboys busy.
Jouten Za @ Mar 28th 2006 6:59PM
You might have to try fishing somewhere else don_sf, doesn't seem to be anything biting here where you're trolling. lol
SuicideNinja @ Mar 28th 2006 7:00PM
don_sf, just because Microsoft lost money on the original Xbox doesn't make it a bad console. And just because Sony made money on the PS2 doesn't mean it is a good console. Most Xbox versions of multiplatform games look better, play better, and have more network/online features than the PS2 versions. The original XBox has supported HD the whole time as well. But PS2 had more mindshare, which essentially forced developers/publishers to go with the less-capable console.
Microsoft made some bad decisions with the Xbox, and it cost them. The only reason they didn't do better is because they didn't have enough (or the right) "exclusive" titles and they were the new guy in the console market. The exclusive problem will go away, and the 360 has consumer mindshare this time. I'm not saying the 360 will outsell the PS3, but Microsoft won't be going anywhere; they are much better poised in this generation than the last.
We all are probably best off if all three manufacturers even out. I am a bit concerned for Nintendo though. But they are tough.
DeeMan @ Mar 28th 2006 7:02PM
VaultedCeilings has it right. Component costs may be less, but by the time you add in marketing and R&D, they're not making any money on each box - yet.
That said, they're a hell of a lot closer than they were at this stage of the Xbox launch...
boots (former bd) @ Mar 28th 2006 7:06PM
Laughing Target:
You can pay Mexican's cheaper salaries, but many services are cheaper in the states. For example:
Internet (monopoly), Cell phone use (almost monopoly in mexico), home phone (also a monopoly), electricity isn't as cheap as you would think (government owned monopoly), Gasoline (government owned monopoly, despite the fact that Mexico has supposedly MORE oil than the states). LOL, most of these companies are owned by the same guy, and once were also part of the government. So yeah, it might be a little cheaper, yet not very cheap.
Ptaaty @ Mar 28th 2006 7:11PM
#7 are you serious? The only thing the 360 version has in common with playing on the midrange PC is loading...
In fact the 360 is the only version with AA+HDR. Get with the program! The consensus is on a purely graphical level you need SLI or Xfire to beat. This is from people that own both. I have a 7800GT and will be getting the PC version to go along with my 360 version (each good for different things)
There is so much ignorance, misinformation and twisting around out there it isn't even funny. Go to futuremark.com and look in the console forum for users who have both and compare.
The 360 is an incredible value. In no way does my 7800GT that cost more than the core system BY ITSELF represent a good value compared to the 360...
don_sf @ Mar 28th 2006 7:14PM
someone should write a book 'understanding the mind of a xbox 360 fan boy', i would be interested in the chapter titled 'why we lost 5 billion'
LaughingTarget @ Mar 28th 2006 7:24PM
boots -
Not quite. The #1 source of overhead cost in American industry is the benefits administration (health, 401k, pension, etc). The manufacturing sector is the worst due to union representation (which is why American manufacturing cannot compete with the rest of the world, but that is for a whole new discussion).
Sure, you have a monopoly on a lot of services in Mexico, but the savings Microsoft pulls from not having to pay all those benefits to Mexican workers is astoundingly huge. For example, the avererage cost of company health care for an individual is $7,000 a year. If you hire 1,500 workers, that is $10.5 million in savings right there. Adding a $4,000 a year for the one guy in the factory that needs a cell phone is a tidy trade-off.
The average total benefits package runs at $16,000 a year. So by hiring those Mexican workers, Microsoft saved $24 million a year on benefits alone. Factor in the $22/hour savings for each employee, or around $42,240 a year when considering the average $24/hr a line worker makes in the United States, you add another $63.36 million a year in savings, or $87.36 million a year total.
Gasoline is a negligable cost since the factory is unlikely going to be running its own power plant or using company cars for 1,500 employees, you only need one or two people to have cell phones and the actual landline phone use is going to be used on a fairly limited basis as these plants run themselves without a lot of supervision from the home office, resulting in one guy using a more expensive phone as opposed to 100 using a slightly less expensive one. So, you will have a tiny increase in utility costs but a decrease in all other overhead costs, such as safety standards, cheaper supervisors, cheaper inspectors, and cheaper incidental materials.
JGrass @ Mar 28th 2006 7:34PM
Microsoft isn't paying salaries or benefits for the actual production labor force... these are contract manufacturers, so all that is baked into the BOM (bill of material cost).
Mariofan14 @ Mar 28th 2006 7:50PM
So at $310, it is still as powerful as the $700+ PS3......Wow I would atleast thought is to be $500 to make..
Chris @ Mar 28th 2006 7:54PM
But what's the price of a 360 to WalMart, CC, BB, etc?
R TARD @ Mar 28th 2006 8:01PM
14. someone should write a book 'understanding the mind of a xbox 360 fan boy', i would be interested in the chapter titled 'why we lost 5 billion'
Are you serious???? XBOX 360 didnt lose 5 billion that was the XBOX you moron..you sir are just a stupid (insert console here) fanboy!
mercatfat @ Mar 28th 2006 8:06PM
"But what's the price of a 360 to WalMart, CC, BB, etc?"
things like consoles and ipods have VERY LITTLE turn-around profit for a retailer. that is why they never go on sale, other than with pack-ins and "special offers" that encourage the consumer to spend more on related products (ie DVD remote= DVD sales).
don_sf, you're basically 8 years old. stop trying to incite a riot.
skyrous @ Mar 28th 2006 8:14PM
That's microsofts strategy to make money on the system.
By the time they get around to manufacturing them in quantity (if ever) they'll be cheap enough to turn a profit per unit sold.
Owns @ Mar 28th 2006 8:41PM
ok, I'll bite.
Hahaha...i like how he's making fun of "fanboys" when its obvious he's one.
Why would we care if MS lost money? Do I work for the company? No. Let's see Sony lose even 1 billion and still survive. Oh wait...that's right...they will when/IF the PS3 comes out. Go back to your bridge, troll.
slow news day @ Mar 28th 2006 9:15PM
A factor missing in the equation is development costs. It's not like they slapped it together and said, okay this cost us $310. There's millions of dollars in costs before the 360 even hits the market.
But I certainly believe Microsoft learned their lesson with the Xbox and made adjustments this time around. There's no doubt in my mind they'll be poised to recover costs sooner. They're getting a piece of all accessory sales. There's licensing and software, where the real money is generated. And now they have micro-transactions and xbox live arcade sales.
This is the one area where Sony is most vulnerable. If Microsoft didn't lower the cost of the 360 by the time the PS3 is released, they're missing a HUGE opportunity. I'm thinking new bundle (SKU) by that time too.
DocEvil @ Mar 28th 2006 9:58PM
#4, 10, 15
"xbox 180/1.5/housing project/big black box lost 4 billion"
I love how people always throw this out there!
Let's think about it, Microsoft lost $4-5 billion on the sale of xbox consoles so that we (the consumers) could buy the console at a significantly lower, competetive price point.
*thinking about it*...
Okay, I've spent some time thinking about that and I can't think of -a single reason- why this is a bad thing.
Even more ironic for the people that keep throwing this out there is that Sony is on the verge of the exact same scenario to keep the PS3 competitively priced which is great!
Ironic - Poignantly contrary to what was expected or intended.
imz @ Mar 28th 2006 10:26PM
Sony's screwed. With 360 price dropping (seeing how it'll have been a year since 360 launced when the ps3 comes out) and the revolution already being consumer friendly. Sony's gonna be burning a whole in people wallet with a flamethrower. period.
DeeKay @ Mar 28th 2006 10:35PM
Microsoft knew they weren't going to make much of a profit with the XBox. The money they've lost is also the amount of money they've spent trying to build up a name and a user base for the XBox. Now that they've done that pretty well, I'm thinking that they wouldn't spend as much on marketing and the such for the 360.
But as for Microsoft making a profit with the 360? I find that hardly believeable. Some of you may have forgot, the article mistakenly estimated the price with 64 MB of RAM, not the 512 the 360 actually has. Memory may seem cheap, but a jump from 64 to 512 would add a significant cost to the manufacturing costs. If memory was indeed that cheap, then Nintendo and Sony would easily add more RAM to their respective consoles. Plus, the multicore CPU and the powerful GPU aren't going to be necessarily cheap. It's pretty logical, the more powerful a system is, the more it'll cost.
Also, would having the XBox 360 being manufactured in Mexico make a huge difference in costs? The original XBox was also manufactured in Mexico, and Microsoft made a loss on each console sold.
Anthony M @ Mar 28th 2006 10:35PM
"Based on its product teardown analysis, Portelligent estimates the total hardware cost-of-goods sold (COGS) for the $299.99-retail 'Core System' to be approximately $310, reaffirming the negative-margin aspect on the hardware side of the game-console business."
This is a COGS estimate, so direct labor and overhead costs are already included.
Development and marketing costs aren't considered, since all we want to know here is if Microsoft is making any money per unit, not in the long run. If you want to know if the 360 will ever turn a profit in the future, R&D/marketing costs will be compared to final sales numbers, a figure we won't know for some time.
So, the company is really only losing $10 per core-system sold, assuming the calculations include the correct components.
Darth Pixel @ Mar 28th 2006 10:39PM
Only Microsoft will ever know how much it costs to deliver Xbox 360 to the consumer.
However, it is clear manufacturing costs are only a fraction of the total cost.
Clearly, Microsoft splurged on expensive marketing tactics: A lavish party in the desert, lounges here and there, national TV shows, ads on national television, all sorts of contests and promotional events, huge floor spaces at trade shows, investments in studios created for the sole purpose of attracting the attention of famous game designers.
I won't even mention the infrastructure costs they added to Xbox Live in order to enable downloadable content.
So, I don't see how they could make a profit per console before another 12 months.
In the end, just wait until they tell you how the entertainment division is doing, (because I don't think Microsoft will dare to break down their revenues in a way that would reveal how Xbox 360 is doing individually.)
TME @ Mar 28th 2006 11:17PM
This is a huge discrepancy from the $700 figure earlier. I think the only thing we can conclude is that these analysyts don't know shit from beans.
Oozer @ Mar 28th 2006 11:28PM
I'll take a nibble at the brilliance that is "don_sf."
I'm currently reading "Opening the Xbox" about the development of the original Xbox. Microsft knew, more than a year and a half before it came out, that it would lose money on the Xbox. They expected to lose up to $3.3 billion dollars on it. They did end up losing more than that, but it was never intended to make money. It was meant to give Microsoft a foothold in the console business.
skyrous @ Mar 28th 2006 11:41PM
You want a single reason why is microsoft losing money on the xbox a bad thing? OK
If they keep losing money you'll never see the xbox 720. If you like the company you want them to make money or they'll go away. Microsoft isn't gonna go bankrupt over the xbox but at some point they'll cut their loses.
If nintendo were run like either microsoft or sony they would have gone bankrupt 2 years ago.
Siraris @ Mar 29th 2006 1:51AM
I find it funny to even see articles posted about Microsoft losing money on producing the 360.
Microsoft has 50 BILLION dollars in cash. Do you think the 360 is really important to them? The physical console itself is just a way for them to further their presence in your home. They are not in this for the money.
Just to put it into perspective; Let's say Microsoft was losing $100 per console. If they manufactured 50 million consoles over it's lifetime, that would be a 5 billion dollar loss (if they made no profits from games whatsoever). They would still have 45 BILLION dollars in cash left after losing that money.
Seriously, this cost of manufacturing is getting a little old, especially when none of the people making these guesses have any real clue what it really costs these companies.
epobirs @ Mar 29th 2006 3:15AM
The reason I pointed this out to Joystiq.com is that several estimates of the Xbox 360's cost in the past have struck me as far too high to ever be financially viable unless the average owner was buying dozens of new full priced games. Either Microsoft had learned nothing from their first console or the estimates were wildly inaccurate. Since Portelligent's teardowns appear regularly in EE Times, a publication widely read by people in a position to critique any mistakes they from a highly informed perspective. So I'm inclined to believe Portelligent has a good handle on their analyses.
The COGS (cost of goods sold) figure isn't the end of the story, of course. Hundreds of millions of dollars were invested in creating the hardware, firmware, platform specific development tools, platform evangelism and other developer relations, and on top of all that, marketing to consumers. Any company that cannot afford to invest at least a billion dollars before selling anything simply cannot be a serious contender in the console market. They might manage a niche product but not a market leader.
Even then the product must able to produce enough revenue (including software and accessory sales) to make a profit. If possible the product should sell for no more and no less than what it cost to get it into the stores. From there any strong game for that console will generate serious profits for the console producer, either because they are the publisher or collected a lucrative royalty payment for manufacturing the media. That is, after all those preliminary and ongoing costs have been covered.
But high tech competition makes for costly hardware. More costly than consumers will accept. So, often a product will sold at a loss because a strong software market is so lucrative. Initially the loss will be high but with the expectation the costs will quickly drop to something reasonable and those first machines are chalked up to the cost of establishing a new platform.
This worked out extremely well for Sony. Due to a delay in the intended manaufacturing process the early PS2 units shipped in Japan were horribly expensive but this only affected the first half million or so machines. It added a few months to the time it took before PS2 software sales became profitable but that was a small setback for the machine that ruled its generation in net revenues.
Microsoft tried to emulate this approach with the Xbox but could never get the chipset costs (or rather Nvidia) under control. The addition of the fixed cost for the hard drive didn't help either when they were the only console including it as standard amid a console audience that often failed to appreciate its value. If Microsoft had been more adept in getting its story across it could have charged more for their console rather than being forced to match Sony's every price drop. (More games that took strong advantage of the hard drive beyond caching and save games would have helped, too.)
With that history in mind, the far smaller COGS vs. SRP gap for the Xbox 360 is a very positive item. It will still take a lot of software sales to cover the pre-launch costs of the product but once that is achieved the average Xbox 360 has a good shot of producing ample net revenue, especially as future versions of the chipset should allow for price drops without any greater subsidy of the hardware. (The engineering revisions cost money but far less than the initial design work.)
#16 is quite right. Companies don't take their business to other countries and face criticism if there isn't a lot of money to be saved. The only way to manufacture a console in the US or many other developed countries without substantial added cost would be to have such good factory automation as to almost entirely eliminate humans. Much of the skilled labor has been done away with but a lot of humans are still needed, so they need to be least expensive humans who perform well in a country that offers the best conditions for running the operation.
#21 is also correct. A lot of premium products are handled by retailers for margins that barely cover the cost of paying someone to unload the palette and put the boxes on a shelf, then later ring up the sale. Handling the hardware is the price for getting in on the software and accessory sales.
Nothing new there. Back when I sold personal computers in 80s the entirety of the profits were frequently in items like printer cables and paper. You sold people the $1,000 computer at no profit so you could also sell them a $5 printer cable for $35.
#26
I believe the 64Mb reference was a typo and not the amount used in the analysis since they state the RAM is the third highest cost item in the unit.
The origianl Xbox lost money for reasons other than the manufacturing sites. Numerous other successful product were coming out of adjoining factories in the same regions. Setting up factories in China, Third World nations, and former Soviet satellites is just what is required to get your finished product for the lowest cost. The difference in personnel costs and reduced regulatory red tape is impossible to ignore.
epobirs @ Mar 29th 2006 4:19AM
#32
Microsoft entered the console business to make money. It has other benefits for the company but ultimately there must be a positive return on the investment. Blunting the influence of Sony has some value but is difficult to quantify and hard to sell to stockholders in billion dollar increments.
They made mistakes with the Xbox. The two killers were, first, believing they had to follow a schedule set by the competition and rushing their product, and second, due largely to the first and also from seeking to find a better business model, they made a bad deal with Nvidia for much of the Xbox chipset. Several of the people responsible for these decisions are no longer working at Microsoft. Some were pushed and some jumped when they saw the push coming.
Gates and Balmer probably didn't expect to jump to the top of the game console mountain in one generation. It took unique situations for Nintendo and later Sony to do that. But I'd be extremely surpised if they went into it expecting to lose such a vast sum.
If they'd scheduled launch for a year later they could have had a Microsoft owned chipset that would have been more powerful (and costs would also have allowed more RAM) and allowed them to control costs. They at least can be given credit for understanding what went wrong and sticking with the console business rather than retreating in defeat. Having immense capital resources allows for that.
#33
Microsoft sold plenty of Xbox units. Over 35 million to date worldwide. The US installed base is on par with the SNES at its most popular. People in Microsoft's native market obviously liked the Xbox quite well. Notably more so than the GameCube. But neither could match Sony's momentum, especially in Asian markets where the Xbox did poorly and the GameCube only so-so. The PS2 has many millions more units sold than the Xbox, GameCube, and Dreamcast combined. Sony had the advantage of being the market leader and made the right moves in following up on that.
Gosh, a company asserted it intended to be #1 and didn't succeed. When has that ever happened before? More to the point, when has a company in speaking to the press ever targeted anything but the #1 spot. Can you imagine a Nintendo rep in 1995 touting the upcoming N64 by saying, "Yep, we expect to lose a major portion of market share to Sony and only manage a distant #2 position because Sega is self-destructing and guys like SNK, 3DO, and Atari lack the resources to mount a real competitive product. We'll never know another glorious period of near monopoly in consoles. Isn't that great?"
Of course you'll never hear a marketdroid say anything like that unless he's already signed up to work somewhere else.
If Xbox Live as a paid service was such a mistake, why is Sony intent on copying its structure for the PS3? The two tiered structure introduced with the Xbox 360 appears to be working out quite well. Now that broadband service is available to a majority of home likely to buy game consoles this approach makes sense. A few years ago when broadband was a premium for many it made sense to charge for all Xbox Live access to make the infrastructure development pay for itself. As a result the Xbox 360 has a service offering in place at launch that the competition is still working towards matching.
It's true the Xbox 360 doesn't include WiFi. Since Microsoft isn't pushing a handheld game system and is determined to be more competitive on cost of entry this time around it makes sense that the cost of the WiFi functionality is only an expense for those who have the need. For Sony and Nintendo it makes sense to make WiFi standard because they have great incentive to crosspromote their portables in conjunction with their consoles. If Microsoft were to jump into the hanheld market they could simply offer a lower priced adapter for the Xbox 360 or run a rebate promotion for those purchasing both the portable and the WiFi adapter.
One reason for the price of the 360 WiFi adapter is that it also includes 802.11a support. This can be very useful for environments where the b/g band is severely congested. (I can detect 11 access points from my desk right now.) This puts a serious dent in the bandwidth any one b/g device can achieve but has no effect on less common 802.11a. Offering a model that only supports a/b/n WiFi modes is something MS can do quickly if the market makes a clear demand for such.
Many of us have no need. In my previous residence I had a wired network connection going to a switch in my rack of game systems. I have to use WiFi in my current home but since I already had a wireless bridge to let my RePlay DVR get internet access, I simply connect that to the aforementioned switch, so one WiFi bridge supports all of the network capable game systems and DVR. When I get around to buying a 360 I'll simply run a $1.50 cable from the switch to the 360's ethernet port and be online without the hassle of configuring another WiFi security setup.
Bubba_Fett @ Mar 29th 2006 4:21AM
Did you hear that the PS3 got pushed back to November? LOL Sony flops yet again! Microsoft has Sony by the short & curlies
rob @ Mar 29th 2006 8:13AM
I dunno if its been posted yet, but the Samsung RAM is 64mb, but there is 8 of them in the 360 console 8x64= ...
dvdguy @ Mar 29th 2006 8:40AM
"yo if people aint buying ur console, it means ur console aint good."
LOL, that's not what that means at all!
People love the Saturn and Dreamcast. Did they sell well? Not really.
Does this equate to movies too? If a movie doesn't make much at the box office, then it sucks? So you're telling me that The Shawshank Redemption which cost $25 million and only made $28 million is a lousy movie?
cueball194 @ Mar 29th 2006 10:18AM
The sheet cost for the 360 core system is $289.00...the premium bundle is $378.00. Sheet cost is the price retailers and distributors pay. Margins are non-existent in consoles. Here are some other examples:
PS2 $142.00
Gameboy $75.00
Gamecube $94.00
PSP $242.00
DS $123.00
What everyone is missing, or at least i didnt see it cuz i got bored with all of the uninformed babble, is that the 360, and any console for that matter, is produced to generate software sales. The 1st party companies (MS, Sony, Nintendo) are paid royalties on every game that is sold for their platform. By most accounts, Microsoft received between $7.00 and $9.00 per game sold, from game publishers, for games on the original XBOX. This means if EA sold 2 million units of Madden for XBOX, Microsoft received between $14,000,000 and $18,000,000 for supplying the system for the game to be played on!
The point is...Yes, the system is being sold at a loss (check the link).
http://businessweek.com/technology/content/nov2005/tc20051122_410710.htm
However, overall the system becomes a very profitable business venture for the company very, very quickly thanks to royalties from software and accessory companies. Dont be fooled. If Micrsoft didnt make a ton of $$ on the 1st XBOX, do you really think they would have even thought about doing the 360?
DocEvil @ Mar 29th 2006 2:17PM
#30
"You want a single reason why is microsoft losing money on the xbox a bad thing? OK
If they keep losing money you'll never see the xbox 720."
Here's a quote from Robbie Bach:
"The thing everybody has to understand is Microsoft knew going into this business that we were going to be making a big investment. It's a high-investment business.
But we also know that it's an area where we can build both a business that's strategically important to our commitment to the home, as well as a business that can make money for the company ultimately."
http://seattlepi.nwsource.com/business/173277_e3bach14.html
They knew that they would need to invest heavily in the conslole in order to establish it in the industry and more importantly in the home.
Their business model is long term and as far as I can see, it's been very successful. The xbox managed to achieve the number 2 spot displacing Nintendo as Sony's largest competitor in -one generation- and even started to post profits starting last January.
http://www.xbitlabs.com/news/multimedia/display/20050130063954.html
Now, look at where they are sitting with the 360. They are first to market, their live service is established and reputable, they have integration with the pc in the living room and according to this very article, look as though they will soon be profitable. Also, I'm sure that the conectivity to the 360 will be a factor in the purchase of XP or Vista for a number of people. Clearly, the 360 is a very good thing for the company leaving little doubt of it's successor.
I still can't see how it was a bad thing for consumers that the xbox was at the same price point as the ps2 when it should have been $100 more...
David Carey @ Apr 2nd 2006 11:39PM
Hi folks;
Just wanted to chime in on this thread as the author of our analysis, columnist in EETimes, and Chief Wrench of the company behind the $310 number.
Our analysis is an estimate of the constituent component costs [cost of goods sold / COGS] of the core xbox360 - there are other costs on top of this related to development of the the console and its marketing, distribution, etc. Nothing more or less complicated than that.
I think the article in EETimes speaks to the details; It's a money loser at some level but considering accesories (see our teardowns of the wireless controller and wireless adapter in the articles prior to the console teardown) they don't seem to be in too deep. The exact number of any profit/loss depends on many factors and we're trying to cover what we understand best - cost of good sold. I'll leave it to others to estimate ancilliary business costs that flesh out the entire picture. In other words, your actual mileage may vary.
As to whether we're full of sh*t as poster #32 suggested, I'll stand by our 10 year history of COGS estimation, which as poster #36 points out gets regularly vetted by the engineering community we serve. I can promise any estimate we arrive at isn't perfect but I'd welcome any detailed fact-based view to show where it is wildly off. Keep in mind that the specifics behind our $310 figure are based on very detailed research that we deliver to clients; something not covered in the EETimes column
Thanks for listenting; more comments welcome. I see some very informed views posted throughout the thread.
David Carey, President Portelligent Inc. (www.teardown.com)