Print 51 comment(s) - last by sxr7171.. on Nov 29 at 7:55 PM

Microsoft talks about reducing its costs, not ours

With the Xbox 360 having been on the market for over a year now, the rumors of an impending price cut have been constantly batted around. Microsoft even stated back in 2005 before the console first launched to expect yearly price cuts on the Xbox 360.

As certain factors started playing out in Microsoft's favor including the delay of the PlayStation 3 from spring 2006 to fall 2006 ( March 2007 for Europe) and the higher price tags of $499 and $599 respectively for the 20GB and 60GB PS3s, Microsoft backed off on talks of price cuts. When asked about an Xbox 360 price cut in early October, Peter Moore simply said "certainly not." A Microsoft spokesman followed up later in October by stating that there are "no plans to adjust the price of the Xbox 360 this year."

In a recent interview with A+E Interactive, Microsoft’s Robbie Bach is asked about the inevitable release of the next generation “Xbox 720.” Bach’s response was that the engineers are always working on the future products, but that cost reducing the Xbox 360 “seems to be the first order of business.” Lower overall component costs will likely come into play as the hardware used in the Xbox 360 ages along with a planned die shrink from 90nm currently used on the Xenon processor to a 65nm SOI process in 2007.

But while Microsoft is looking to reduce costs to improve the profitability of its Entertainment and Devices Division, it’s still unclear as to when customers will actually see any dramatic price cuts directly from Microsoft. Some vendors are taking matters into their own hands by offering special promotions or rebates with Xbox 360 systems, but Microsoft will likely let the PS3 dance around in the ring for a few rounds before it starts unloading with price cuts.

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RE: M$-the $ pour in......
By crystal clear on 11/28/2006 8:27:27 AM , Rating: -1
Will give a response to this,only after I check these figures with financial circles/sources on Wall street.

RE: M$-the $ pour in......
By ramj70 on 11/28/2006 9:01:50 AM , Rating: 2
You really don't need to check with your "sources" on Wall Street, just look at Microsofts financial statements on their website and lookat at their SEC quarterly report form 10-Q and annual report 10-K and you will see their entertainment division is still operating at a loss. They are indeed making more money in the entertainment division but they are still not profitable in that areat yet. But I'm sure they soon will be.

RE: M$-the $ pour in......
By Master Kenobi on 11/28/2006 10:24:57 AM , Rating: 1
That doesn't mean they aren't making a profit. It simply means the huge hole they dug to launch is slowly being filled in. They are profitable right now, however they still have outstanding debt to pay off from the original costs to design, build, market, and release. Thats why it reports at being a loss. Which might be what you were trying to say, but the wording was a bit off. Dunno.

RE: M$-the $ pour in......
By TomZ on 11/28/2006 10:53:29 AM , Rating: 4
Huh? A loss means that you spent more in the quarter than you took in (cash flow). That is different and separate from having debt from previous quarters (assets/liabilities). Obviously if you have debt it can affect cash flow if you need to make payments and pay interest, but I am sure in Microsoft's case, their investment was self-finaced from cash.

RE: M$-the $ pour in......
By ramj70 on 11/28/2006 11:10:19 AM , Rating: 2
Maybe this article can describe it a little better, don't want to split hairs :)

With 5 million Xbox 360 sold worldwide, Home and Entertainment's operating loss also gained momentum and hit an apex of $414 million for the last quarter of the FY06. This was accompanied by a revenue growth of no less than 129%, or $503 million dollars. "Home and Entertainment operating loss increased primarily as a result of a $682 million increase in cost of revenue primarily associated with the Xbox 360, partially offset by the revenue growth," stated Microsoft representatives.

A global analysis of the Home and Entertainment Division market performance in FY06 reveals an increase in operating loss by 160%, totaling at $1.26 billion. "Home and Entertainment operating loss increased primarily as a result of a $1.64 billion increase in cost of revenue primarily as a result of the number of Xbox 360 consoles sold and higher Xbox 360 unit costs, partially offset by the revenue growth," said Microsoft. "Our fiscal year 2006 operating loss increase was also attributable to the significant impact of Halo 2 in fiscal year 2005. Our business model anticipates that while we currently sell Xbox 360 consoles at a negative margin, product cost reductions and the future margins on sales of games and other products will enable us to achieve a positive margin over the Xbox 360 console lifecycle.”

If Microsoft will continue to navigate the current financial trajectory with its Xbox 360 console, losses are bound to triple, as CFO Chris Liddell revealed the Redmond Company's plans to sell 15 million consoles by the end of fiscal year 2007. Sony is also expected to report an $870.6 million loss on its PlayStation 3.

RE: M$-the $ pour in......
By sdsdv10 on 11/28/2006 1:00:16 PM , Rating: 2
Nice article ramj70. Do you have a link to the original?

RE: M$-the $ pour in......
By ViperROhb34 on 11/28/2006 7:45:49 PM , Rating: 2
Yes and if you go to Forbes and look at the Forbes LIST of Top "Net" Grossing Companies in the World .. MS being number 3 or 4 after banks.. netting something like 1 billion a month.. SO After paying bills, all debts, payrolls, supply cost, you name it - they still have a billion left each month ! .. I don't think MS is too worried if they break even right now on 360.. Sony on the other hand relies HEAVILY on the gaming devision which since PS2 has been one of their sole best incomes.

RE: M$-the $ pour in......
By Oregonian2 on 11/28/2006 2:09:01 PM , Rating: 2
Call things what you will, but you're not profitable until you turn a profit. Which they haven't.

RE: M$-the $ pour in......
By crystal clear on 11/29/2006 4:09:25 AM , Rating: 2
I prefer to do it MY WAY.It suits me-Thats my style.

RE: M$-the $ pour in......
By crystal clear on 11/29/2006 4:48:29 AM , Rating: 2
The above comment comes in reponse to-

You really don't need to check with your "sources" on Wall Street

You apparently have a lot to learn about realities of business & how to operate.

"If you look at the last five years, if you look at what major innovations have occurred in computing technology, every single one of them came from AMD. Not a single innovation came from Intel." -- AMD CEO Hector Ruiz in 2007

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