Microsoft Knocks 40 Percent Off Xbox Manufacturing Costs

Software giant is now likely making money on the popular game console.

New research from iSuppli shows Microsoft is now earning money selling the Xbox 360 hardware.

According to iSuppli’s most recent analysis, the premium version of the Xbox 360 game machine equipped with hard disk drive has a manufacturing and materials total of $323.30, based on an updated estimate using costs in the fourth quarter of 2006. This total is $75.70 less than the $399 suggested retail price of the Xbox 360. While freight, toll, retail partner’s profit and other possible charges have to be factored in, it's likely that Microsoft has either managed to reduce its loss to minimal or is making a tiny profit selling the $399 version of the Xbox 360, iSuppli said.

A year ago the total bill of materials cost for the Xbox 360 Premium, including hard disk, the DVD drive, enclosures, the Radio Frequency (RF) receiver board, power supply, wireless controller, cables, literature, and packaging reached $525, well above the retail price of $399, according to iSuppli.

The lower manufacturing cost will allow Microsoft to decrease the unit price of its console or even introduce a new version featuring more capabilities at the existing price tag, iSuppli said. For example, Microsoft could equip its Xbox 360 premium with HD DVD drive and selling it at $399 still maintain price $100 lower price compared to Sony’s PlayStation 3, which is available at $499 and $599.

ISuppli said Microsoft rival Sony Computer Entertainment currently sells its PlayStation 3 game consoles at a $241–$306 loss. If the company manages to trim the production costs by 40 percent in a year, it will cost $483 to manufacture the $499 version of the PlayStation 3 and $504 to make the $599 version.