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.

Comments     Threshold

This article is over a month old, voting and posting comments is disabled

RE: Hopefully they'll be more creative...
By psychobriggsy on 11/28/2006 8:42:51 AM , Rating: 2
Ah yes, the dodgy analysis that somehow concluded that Microsoft's costs for the 360 had dropped by $200 in a year, despite the fact that they have yet to benefit from any process shrink. Sure yields will be higher, and memory will be cheaper, but it is highly unlikely that it will accumulate to a $200 saving in the bill of materials.

RE: Hopefully they'll be more creative...
By borowki on 11/28/2006 10:39:44 AM , Rating: 2
It's called supply-and-demand, duh. Shortly prior to launch, Microsoft wasn't in a position to negotiate with suppliers. Other manufacturers were building up their inventory for Christmas, so suppliers weren't exactly. Now that launch is over and Microsoft has an inventory built up, it can shop around more.

RE: Hopefully they'll be more creative...
By Oregonian2 on 11/28/2006 2:02:29 PM , Rating: 2
It's called supply-and-demand, duh. Shortly prior to launch, Microsoft wasn't in a position to negotiate with suppliers.

Not a chance. Suppliers would have traded their wives and mothers for a chance to be designed into their gaming machine -- and pricing would be key to being designed in.

Unless you thought they'd only sell a couple hundred of them. But if so, you'd not be designed in, so it doesn't matter.

RE: Hopefully they'll be more creative...
By borowki on 11/28/2006 5:12:57 PM , Rating: 1
The components in the Xbox 360 are largely commoditized. DVD drive? You can buy it from anyone. Ditto for laptop hard-drive, RAM, and power brick. Microsoft owns the designs to the CPU and GPU, so they can fab them at any number of foundries. There is no getting one's component "designed in."

Microsoft has learned their lesson after being squeezed by Intel and Nvidia in the original Xbox.

RE: Hopefully they'll be more creative...
By Oregonian2 on 11/28/2006 7:18:52 PM , Rating: 3
Speaking as a circuit designer and system architect of over thirty years experience, I stand by my previous comments. However I'll add the phrase "spec'd in" to my "designed in" in order to be more explicit.

Suppliers would do anything they can to get their foot in the door up front because of future expected volume. Microsoft won't use the cheapest DVD drive du jour with twenty brands of DVD drives among the Xbox'es. They'd likely have very very few, but probably at least two. They'd be heavily tested and qualified with pricing, quality (including return/repair language defined) and volume availability arraigned up front, chosen between all the possible suppliers. It's not the same as buying one unit. They need volume, they need it delivered on schedule, they need them all to work to spec and do so for some time longer than Microsoft's guarantee(if not longer :-). Any power brick would have been custom designed and
heavily tested as well as priced to trim off any cents they can within other constraints.

Also note that they don't buy (and get priced) from order to order,
even among much lower volume electronic manufacturing, pricing is often set on a volume-per-year basis, not on a per-order basis, and so Microsoft's first year of production would be huge. But because of that hugeness, they can do better than that normal operating practice sort of purchasing methods (like getting binding quotes ahead of even picking technologies to use -- heck even I do that in my much lower volume designs)

By borowki on 11/29/2006 2:36:43 AM , Rating: 1
Samsung and Hitachi are supplying drives for the 360 IIRC. These are just standard SATA with some modification. Nothing would stop Microsoft from switching to another supplier, as they have done in the past with the original Xbox. The company has plenty of experience working with heterogeneous hardware. To throw that out the window to lock themselves to specific suppliers would be stupid. Any supplier counting on that would be too.

You speak as through manufacturers have unlimited spare capacity that they desperate to utilize. Volume purchase only gives the buyer bargaining power if there's ample supply. If there isn't, then it actually drives up prices. It's basic economics.

Microsoft's procurement process definitely does not work as you described. It's documented in their own case studies. No one can run a supply-chain in such a fashion and hope to stay in business in a competitive environment. Setting a price on a yearly basis is stupid on a product whose price depreciate over time. You either overpay or risk supply-chain interruption because a supplier isn't willing to sell at a loss--as had happened with Nvidia. Microsoft uses an online procurement system with the 360, where multiple suppliers have to bid for an order. That helps the company get the best possible deal that a supplier is willing to accept and capable of fulfilling.

By Orpheus333 on 11/28/2006 12:11:07 PM , Rating: 2
I think Microsoft is about $70 in the black for each 360...

I'm pretty sure that was in the DT article about how much sony is losing on each PS3 sold.

"This is from the It's a science website." -- Rush Limbaugh

Copyright 2016 DailyTech LLC. - RSS Feed | Advertise | About Us | Ethics | FAQ | Terms, Conditions & Privacy Information | Kristopher Kubicki