There has been a lot of reactions lately to Sony introduction of the PS3 slim as well as its price cut and to MS new pricing strategy.
Following this announcement we read quiet some rumours (logically dismissed by MS) about a 360 slim as well. We even read about even more hypothetical PS3.5 and XBOX560 (funny it should be 540 but I guess the guy doesn't know how to count under a million...
). To make it clear I don't believe that the ps560 thing will happen, thus I won't discuss it. What is more interesting on the other is the xbox slim, I pretty sure that rumours we read were based on thin air but I think that there is no point in dismissing that this has to happen.
While not badly threatened in the short term, I think that Ms is somehow in a tight spot. In Japan late PS3 price drop along with upcoming titles as FFXIII, GT5, GOW3 should allow to almost wipe the floor with the 360. OK Japan market is no longer as relevant as it was. In Europe the trend is likely to reverse in favor of Sony, I don't expect a tsunami but in the long term without proper reaction sales will add up. In Us the situation is less clear as Ms is in a pretty comfortable situation but I still expect an impact say in the long run.
Overall when the economy will go better and that the video game market will grow again Sony will be in a good position to steal from them a consistent part of this growth.
Ms has Natal coming for fall 2010, to me it's their trump card, if it works it can be the new wii and we have to consider the thing come to the PC realm as well. Natal is likely to cost some money, most likely more than a ps eye+ wand for example. For a wide spread adoption and if MS will want to expand consistently their market share they need the 360+natal to be an affordable combo.
In the more traditional gaming space they also need to be cheaper if they want to reach more costumers.
In the same time Microsoft upped by 20 euros the arcade pack price and by 10 euros their "complete" pack. Doesn't make that much sense, Ms just gave up on aggressively pursuing market shares. To me it's pretty clear that microsoft expect the actual economic climate to leverage the effect of such a politic. In the same I suspect that are preparing their next move. It may looks like Microsoft is placing profitability first but I don't think. Arcade may have been a loss leader this is not my point (back to this later). I think Microsoft try to save some bucks because they know they will have to make significant R&D efforts within the next months.
I would not be surprised if Ms doesn't make any aggressive moves till at least H2 2010. They will let Sony gain market share and mind-share. It's risky business as by this time early changes economic climate we're seeing may have made their way till "real" economy (read employment) they can't afford to be too late. I would not be surprised if results for the next quarters are bad and Ms CE division post losses and by the time Ms makes its moves Sony may have close in by at the very least an half of the actual gap.
In order to make the most of the economic up take likely to happen within 2010 and give Natal a good chance the 360 has to go through a complete redesign. By the time Ms moves they should put themselves in the position to ship the arcade @129€/$, the Natal pack (arcade + natal)@179€/$, and the "complete pack" (arcade+natal+HDD)@ 239euros (old PRO pack price in Europe) without significant loss. It's a serious challenge. That's why I think Ms upped the price in Europe to amortize even a little the loss the division will go through in the nexts quarters/year (as even after new revision is introduced, they will face significant marketing expanse for their relaunch or Natal launch depending on how you read it.
I think the R&D efforts will be significant for various reasons. They can't afford another fiasco ala RroD while taking an critical corner in the history of their division (if taken successfully competitors may suffer, that's only my opinion feel free to disagree). So they will double check everything. They have to shrink every single part of their actual system, CPU should be port to a 45nm SOI process, Edram to a 65nm process (currently 80nm) and last but not least the GPU. The GPU is problematic case if they shrink it properly using one of the TMSC 40nm process (I would favor their low power/less dense process) I wonder if Microsoft will be able to fit a 128 bits wide bus in it.
A succesfull implementation of xenos @40nm could be really tiny. Original size was 182mm²,using a 0.6 factor that previous shrink fail to reach the chip could be ~70mm², using 0.7 factor ~90mm².
Microsoft may have to use GDDR5 on a 64bits or 96bits, not too bad as GDDR5 may be cheaper by this time but it also imply a rework of the memory controller (not too mention a lot of tests to make sure the new system is fully compatible with earlier systems). They may have to consider paying ATI a little more...
This will cost Ms a lot of effort and money, I expect them to enter a "sleep mode" for at least 3/4 of a year from now. Obviously they have been working on cost reduction all along just I think effort will intensify.
Speculation mode pushed even further... (sorry)
I would like the thing to be significantly tinier with all the chips being only one package and trading the bulky DVD player from something from the laptop space. I would expect something like a big Wii with the Hdd used as "stand" (as it would be mostly wider than the system putting it on top is not a possibility). I would favor an external PSU for minimal encumbrance).
