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Microsoft Losing $126 on Each Xbox 360 Sold
23 Nov 2005 09:05 | Dusty | Xbox 360
Xbox360News.com | Read & Add Comments (44) | Link to this article

If you think paying $400 for an Xbox 360 is too much than you should know that you are actually getting a lot more hardware than you are paying for, $126 more to be exact. Market researcher iSuppli have done a break down on the cost of all the components used by Microsoft in the Xbox 360 manufacturing process and found that the cost per console unit is $525.

[ But when it comes to profitability, the new machine won't change anything. Microsoft will carry on its tradition of taking a loss on the console, according to a preliminary analysis by market researcher iSuppli.

An up-close look at the components and other materials used in the high-end version of the Xbox 360, which contains a hard drive, found that the materials inside the unit cost Microsoft $470 before assembly. The console sells at retail for $399, meaning a loss of $71 per unit -- and that is just the start.

Other items packaged with the console -- including the power supply, cables, and controllers -- add another $55 to Microsoft's cost, pushing the loss per unit to $126. These estimates include assumptions that Microsoft is getting a discount on many components.

That was the case with the first Xbox console, which contained about $323 worth of parts and materials when released, but sold at retail for $299. It's certainly not going to help Microsoft reverse the trend of losses in its home-entertainment segment. In the fiscal year ended June 30, that unit lost $391 million on sales just shy of MainNewsBlog.25 billion. That's a little more than 8% of Microsoft's total sales of $39.8 billion.

A Microsoft spokeswoman said that the company's plan calls for a "gross margin neutral" strategy through 2006, meaning that between the sales of consoles, game software, and accessories, it expects to essentially break even. Profits should follow in 2007.

Source: Businessweek via PlanetXbox360





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