360 costs and loss

flogen

isuppli have broken down the cost of a 360 and estimate that the machine costs $126 more than the sale price before the packaging and marketting comes into effect.
It's a fair whack of a loss, although I'm not sure how that relates to the loss made on the original xbox.

One issue I would have with isuppli's figures is the quantity discount, I'm pretty sure they've included one, because they price a triple core processor at $100, but on what grounds did they get this figure? It could be possible that MS are paying less or more.
I remember Allard saying that MS would pretty much break even on the console and profit elsewhere, I would have thought that pretty much break even would be a slight loss, maybe 50 max, but not nearly 200 if you include all the extras (marketting etc.)

wayne040576

flogen wrote:

isuppli have broken down the cost of a 360 and estimate that the machine costs $126 more than the sale price before the packaging and marketting comes into effect.
It's a fair whack of a loss, although I'm not sure how that relates to the loss made on the original xbox.

One issue I would have with isuppli's figures is the quantity discount, I'm pretty sure they've included one, because they price a triple core processor at $100, but on what grounds did they get this figure? It could be possible that MS are paying less or more.
I remember Allard saying that MS would pretty much break even on the console and profit elsewhere, I would have thought that pretty much break even would be a slight loss, maybe 50 max, but not nearly 200 if you include all the extras (marketting etc.)

It's all about market share for them at the moment. They are willing to take a loss on the sales of the machine if it will get them a bigger share of the market. With rumours that the ps3 is to be hitting $500 mark it would make sense to sell the 360 as cheap as possible. This could lure some customers who couldn't decide which one to get. I haven't seen any official sources for the ps3 price but rumours can sometimes be enough to convince people.
I know that microsoft sold the original xbox at a loss but I didn't think they would be doing the same with the 360.

iregk

Consoles are always sold at a loss, its the only way to make them affordable. Remember they are basically small form pc's and you'd have no hesitation in handing over 7 or €800 for a pc but a console no!

Id say the prices are best guess without taking into account the fact that they ordered what ever amount of million core processors etc... That said they will still make a loss initially. I think Allard was talking about breaking even over its life cycle. A company usually only get profit towards the latter years of a consoles life cycle.

Hyzepher

I would take this with a pinch of salt - IBM are not reveiling the costs for MS as are non of the other parts suppliers. You can bet that MS are getting a much better deal than $106 per processor - bulk alone would give them a fair discount. MS themselves have stated that they are breaking even on the costs - thereabouts.

Hyzepher

savemejebus

iregk wrote:

Consoles are always sold at a loss

not necessarily afaik the gamecube and ds didn't sell at a loss

steviec

Hyzepher wrote:

I would take this with a pinch of salt - IBM are not reveiling the costs for MS as are non of the other parts suppliers. You can bet that MS are getting a much better deal than $106 per processor - bulk alone would give them a fair discount. MS themselves have stated that they are breaking even on the costs - thereabouts.

Hyzepher

While it certainly won't be 100% correct, I'd say the article is pretty well researched. Surely the $106 is taking into account that their buying in bulk. If not then please tell me where you can buy a single processor of that power for that price.

wayne040576

savemejebus wrote:

not necessarily afaik the gamecube and ds didn't sell at a loss

Yeah I've read that before. Nintendo have a good record with their hardware sales.

iregk

appologies you are correct. the cube was sold at a profit. although im not sure if that was over its lifespan or per console from teh off. Either way they did make some green...

flogen

iregk wrote:

appologies you are correct. the cube was sold at a profit. although im not sure if that was over its lifespan or per console from teh off. Either way they did make some green...

I'm pretty sure it was from day 1, just like the DS. Nintendo have a nack for building quality machines (the GC was amazingly powerful for its size and price, and while the DS is not up to psp standards it still sells for €100 less, at a profit and with a unique control system, while the PSP sells at a loss) while still making money. As far as I know they intend to make a profit on the Rev from day 1 too.

Other than that, yes consoles tend to run at a loss until the last year or two of their lives (if they make profit at all). From what I've read MS have structured the 360 like sony structured the PS2 so that it will eventually make a profit (as parts drop in price). I just figured from Allards comments that they'd be in a better starting point as far as loss/profit goes at the start. Maybe he was assuming that every console sold would go with at least 2 games, which would surely cut the loss down a little bit.

steviec

As far as I know the problem with the xbox was the contracts they had with suppliers. So even with the xbox a fraction of it's original price in the shop today, it's still costing Microsoft just as much as it ever has to produce because their paying Intel and nVidia a fortune for the parts.

For the xbox 360 they got the rights to the parts. The processor and graphics were designed by IBM and ATI, but microsoft have bought the rights to produce them. Therefore they can reduce costs as time goes on in the same way as Sony do, and eventually turn a profit.