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iSuppli: Xbox 360 Hardware Costs Now Profitable?

iSuppli: Xbox 360 Hardware Costs Now Profitable?

November 23, 2006 | By Simon Carless

November 23, 2006 | By Simon Carless
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More: Console/PC

According to a report by iSuppli, which recently noted a $300 loss per machine for Sony on PS3 components, Microsoft's HDD-enabled version of the Xbox 360 is now profitable, when factoring in component costs alone.

iSuppli, which has updated its original report to include its calculations on the Xbox 360, reveals: "The HDD-equipped Xbox 360 has a manufacturing and materials total of $323.30, based on an updated estimate using costs in the fourth quarter of 2006. This total is $75.70 less than the $399 suggested retail price of the Xbox 360."

When broken down as part of the extensive report, the Xbox 360 costs include a $204 motherboard with all included chips, a $19.45 optical drive, a $43 hard disc drive, a $25.50 power supply, and a $20.50 case, as well as $6.10 manufacturing costs.

Obviously, this calculation does not necessarily mean that Microsoft is making money on each piece of hardware sold - not least because its $299 SKU without the hard drive is losing money when these costs are taken into consideration. In addition, packaging and shipping costs and margins to retailers likely mean that the Xbox 360 is not yet at break-even point.

However, Microsoft CFO Chris Liddell recently commented on reduced Xbox 360 hardware manufacturing costs of recent, explaining: "We are seeing lower cost per console... we're doing slightly better than we hoped for." Liddell also reaffirmed that, while initial costs were a bit more than Microsoft expected, the company expected the Xbox 360 to be "cost neutral over the console's life" - a break-even prospect on hardware alone.

Whatever the case, Microsoft's hardware is at a much more promising component pricing point than Sony's, which includes massive costs such as $125 for the Blu-ray optical drive and $500 for the complex Cell-including motherboard. On this, iSuppli still maintains: "Itís common for video-game console makers to lose money on hardware, and make up for the loss via video game-title sales. Still, the size of Sonyís loss per unit is remarkable, even for the video-game console business."

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