Microsoft set to lose $126 on each Xbox 360 console

Microsoft looks set to lose at least $126 on each Xbox 360 Premium Pack sold, according to a report from technology analyst firm iSuppli. Based on iSuppli’s ‘teardown analysis’ of the Xbox 360, the console’s parts alone total $525, which is $126 more than the Premium Pack’s US retail price of $399.

The actual cost of manufacturing each Xbox 360 console, however, is likely to be significantly higher than $525, since this figure doesn’t take into account the cost of assembling, packaging, distributing and marketing the consoles.

The Xbox 360’s ATI graphics processing unit (GPU) and IBM PowerPC-based processor account for the most significant portion of the console’s hardware costs.

The cost of these two key components is expected to decrease over the Xbox 360’s lifecycle as ATI and IBM improve manufacturing efficiency and production yields for the console’s GPU and processor.

Despite these diminishing hardware costs, it appears unlikely that Microsoft will turn a profit on the Xbox 360 console itself.

Rather, the software giant’s profit will come from software licensing royalties, third-party hardware royalties, Xbox Live subscriptions, and sales of Microsoft’s first-party Xbox 360 titles.

Source: Businessweek

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