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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 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.

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