Microsoft hopes to reduce Xbox 360 production cost

“We will wind up cost-reducing the product every year,” Todd Holmdahl, corporate vice president of the Xbox product group, told Reuters in a press conference held shortly before the Tokyo Game Show 2005.

Many Xbox 360 websites have misinterpreted Holmdahl’s comments as meaning that the retail price of the Xbox 360 would be cut annually, however, Holmdahl was in fact referring to Microsoft’s manufacturing costs.

It is estimated that Microsoft suffered losses of approximately $4 billion on the first Xbox video games console - a situation that the company seems poised to remedy with the next generation Xbox 360 console.

Microsoft intends to break even on the Xbox 360 within the first year or two of the console’s 6-7 year life cycle. In contrast with the first Xbox, which was manufactured using off-the-shelf components from Nvidia and Intel, Microsoft owns the intellectual property inside the Xbox 360 console.

This gives the software giant greater control over price, since it can shop around for chip manufacturers and reduce costs as technology advances. Analysts have also estimated that the Xbox 360 is approximately $100 cheaper to manufacture than the Sony Playstation 3, giving Microsoft more leeway in pricing decisions.

It remains to be seen whether Microsoft’s projections of reduced manufacturing costs will result in a drop in the Xbox 360 console’s retail price.

Related:

• Preorder your Xbox 360 here