Researchers from electronics supply chain iSuppli have estimated, in a new analyst report, that the new Xbox 360 console is being sold at a loss of $127 to Microsoft. Analysis of the console by iSuppli has found that, according to them, the materials inside the unit cost $470 before assembly.
Additional items packaged inside the premium $399 Xbox 360 package, including the power supply, cables and controller, adds another $55 to the cost, resulting in a loss of $126. This figure is apparently assuming considerable discounts on the components and does not take into account marketing, distribution and other extraneous costs.
Regarding the original Xbox console, iSuppli estimates that it was sold at a loss of $24 at a retail price of $299, although this is actually significantly lower than most other estimates. Sony consoles are also traditionally sold at a loss, although revisions to manufacturing techniques and a lowering of components costs has previously seen hardware sales move into profit after a year or two on the market.
An unnamed Microsoft spokeswoman, talking to Business Week Online, has stated that Microsoft is planning for a “gross margin neutral” strategy in 2006, with profits expected to begin in 2007, as hardware costs lower and sales of more expensive next generation games software and accessories makes up the deficit.