Changes at Microsoft: Good for XBox?

[c0_re]

It would be great if eventually(say Xbox 3 or 4) you could also play those games on PC and vise versa this would give Miroshaft a HUGE advantage going forward. Think of the potential install base for game sales? This could be the things that evetually "wins" the console war for M$. Genius diabolocal plan for whoever pulls it off.

 

[Acert93]

Allard said their silicon costs were more with the 360 at launch than the Xbox1. I am pretty sire it is expensive:

GPU: 332M transistors. To compare: NV40 is 222M, G70 300M. So biggest GPU to hit the market yet--and we all know how expensive a G70 is! It comes in 2 ICs which should aid yields, but has additional manufacturing costs.

CPU: 165M transistors. An Opteron Dual Core has about ~205M. AMD64 is ~110M. X2 is between 154M and 233M depending on cache size. Based on the fact it costs Intel $40 to make a CPU--not including a fab, R&D, marketing, shipping, etc--it is easy to see how this inflates. IBM R&D and licensing, paying the fab, etc... and the CPU ain't gonna be cheap. Now they will end up making 10s of millions and shrink it, but the first ones are gonna be expensive!

Memory: 512MB GDDR3 700MHz. GPUs with 512MB of memory start off in the $500 range (a good $200 bump over their 256MB counterparts). I would not be surprised if the memory alone was costing MS $100.

The Xbox 360 has a separate PCB for the Wireless controllers. DVD, case, HDD interface, USB, Ethernet, controller, cables, etc... put it all together, ship it. Wow! Expensive! And that is not all.

Then consider all the R&D, marketing, conferences and E3, tech research on comilers/dev tools and other stuff, dev kits, licensing of games, TV/Magazine advertising. All the wages of the people at MS working on the project...

It will go down in price, but I would be surprised if they were not close to $100 over the $299 street price.

I think the difference this round is they have a CLEAR plan on reducing cost. All those chips will shrink and they will be getting them integrated at some point. As the news article noted someone posted, there is a plan to cut costs every year.

 

[expletive]

It would be great if eventually(say Xbox 3 or 4) you could also play those games on PC and vise versa this would give Miroshaft a HUGE advantage going forward. Think of the potential install base for game sales? This could be the things that evetually "wins" the console war for M$. Genius diabolocal plan for whoever pulls it off.

I see potential for a huge piracy problems for MS if they allow 360 games to be played on the open PC-platform so i dont think theyd ever have a 'one disc fits all' solution.

I htink having access to 2 huge installed bases with minimal cross development costs is the long-term goal.

J

 

[Carl B]

Well, three things.

Firstly I totally forgot about the RAM when I was tossing out my figures - so big big omission on my part.

Secondly I was actually thinking about the same Intel costs to fab when tossing out my estimates (max capping at $100 each, CPU and GPU). I don't include the R&D and all that, just the costs associated in the actual manufacturing in determining whether a console is 'profitable' to sell at a given price or not. With ATI's talk of 'fabulous yields' and the XeCPU being of a manageable size in today's terms, I would think it not too bad.

Thirdly, yeah the shipping, case, motherboard, DVD, etc etc... it all adds up, for certain. But to how much? I'm just thinking that at the end of the day, the components of the 360 can't come to too much over $300. I could be way off, I don't know. But I know I can buy cases, motherboards, cables etc etc and come in less that $100, so I imagine even with more exotic componentry, Microsoft will do well there.

So I totally agree that they are likely taking a loss on the hardware, I just don't think they're getting completely hosed though.

Again I factor out all non-direct costs though, so salaries, R&D, marketing, etc...

 

[expletive]

Allard said their silicon costs were more with the 360 at launch than the Xbox1. I am pretty sire it is expensive:

GPU: 332M transistors. To compare: NV40 is 222M, G70 300M. So biggest GPU to hit the market yet--and we all know how expensive a G70 is! It comes in 2 ICs which should aid yields, but has additional manufacturing costs.

CPU: 165M transistors. An Opteron Dual Core has about ~205M. AMD64 is ~110M. X2 is between 154M and 233M depending on cache size. Based on the fact it costs Intel $40 to make a CPU--not including a fab, R&D, marketing, shipping, etc--it is easy to see how this inflates. IBM R&D and licensing, paying the fab, etc... and the CPU ain't gonna be cheap. Now they will end up making 10s of millions and shrink it, but the first ones are gonna be expensive!

Memory: 512MB GDDR3 700MHz. GPUs with 512MB of memory start off in the $500 range (a good $200 bump over their 256MB counterparts). I would not be surprised if the memory alone was costing MS $100.

The Xbox 360 has a separate PCB for the Wireless controllers. DVD, case, HDD interface, USB, Ethernet, controller, cables, etc... put it all together, ship it. Wow! Expensive! And that is not all.

Then consider all the R&D, marketing, conferences and E3, tech research on comilers/dev tools and other stuff, dev kits, licensing of games, TV/Magazine advertising. All the wages of the people at MS working on the project...

It will go down in price, but I would be surprised if they were not close to $100 over the $299 street price.

I think the difference this round is they have a CLEAR plan on reducing cost. All those chips will shrink and they will be getting them integrated at some point. As the news article noted someone posted, there is a plan to cut costs every year.

The big plus for MS in this generation as compared to last is that they own the chip designs and produce them themselves. Any cost benefits to reducing costs on production over time results in a direct cost reduction ot 360 units. This was not the case with Xbox 1 because they had ot buy their CPUs from intel and their GPU/corelogic chips from nvidia.

J

 

[expletive]

Well, three things.

Firstly I totally forgot about the RAM when I was tossing out my figures - so big big omission on my part.

Secondly I was actually thinking about the same Intel costs to fab when tossing out my estimates (max capping at $100 each, CPU and GPU). I don't include the R&D and all that, just the costs associated in the actual manufacturing in determining whether a console is 'profitable' to sell at a given price or not. With ATI's talk of 'fabulous yields' and the XeCPU being of a manageable size in today's terms, I would think it not too bad.

Thirdly, yeah the shipping, case, motherboard, DVD, etc etc... it all adds up, for certain. But to how much? I'm just thinking that at the end of the day, the components of the 360 can't come to too much over $300. I could be way off, I don't know. But I know I can buy cases, motherboards, cables etc etc and come in less that $100, so I imagine even with more exotic componentry, Microsoft will do well there.

So I totally agree that they are likely taking a loss on the hardware, I just don't think they're getting completely hosed though.

Again I factor out all non-direct costs though, so salaries, R&D, marketing, etc...

You shouldnt count R&D and marketing, etc becuase those costs will hit the balance sheet when the money is spent and not in 2007 (can you depreciate R&D over time? Would you want to?)when the profitiability is in question. I know marketing will always be ongoing but probably not the huge push that we'll see for the launch in 05 and Halo in 06.

J

 

[Carl B]

You shouldnt count R&D and marketing, etc becuase those costs will hit the balance sheet when the money is spent and not in 2007 (can you depreciate R&D over time? Would you want to?)when the profitiability is in question. I know marketing will always be ongoing but probably not the huge push that we'll see for the launch in 05 and Halo in 06.

J

Well I'm not talking about Microsoft's XBox division profitability here, I'm just talking whether the manufacture and sale of the console itself is a loss-generating action, and to what degree. Obviously in the greater picture, R&D, marketing, etc of course play a role. But when people talk about whether hardware is 'loss-leading' or not, they're not factoring things like the CFO's salary, see what I'm saying?

 

[Nightz]

The reason they can do this now is that the Xbox division is almost profitable and will be by 2007. They don't need the big division to absorb losses anymore.

You know everything being equal, i dont see them being profitable this gen in the console biz. If anything I think costs will rise this generation.

 

[Inane_Dork]

The shuffle is too vague to mean anything to me. *shrugs*

 

[blakjedi]

You know everything being equal, i dont see them being profitable this gen in the console biz. If anything I think costs will rise this generation.

eh... naaah . dev costs will rise, manufacture costs will shrink. at least MS learned that much!

 

[dubyateeeff]

I was thinking about the 360 hardware lately, and I have to imagine assuming they're selling at a loss, it can't be that much of a loss.

The fact that they're promising a price cut every year seems also to indicate that either those cuts will be modest, or there's already a 'bonus to MS' buffer built-in to the launch price.

I am willing to bet, they wont cut the prices this year!

And console prices dipping is expected, I dont know what the fuss is about them announcing it ahead of time. Oh, wait, they want media attention. But looking at PS2/X1 they cut their prices quite regularly.

Anyway the x2 has a nice price and even though they will cut prices I am betting the price for different perhiperhals will stay the same. (a good example of this is the 8mb PS2 memory card) So they should make more and more money as the price of different parts and components drop.

Oh, and even though the components 'are' $200 we still have to pay for R&D, marketing, shipping, storage etc.

 

[EndR]

The first thing they will cut price on could be the HDD. Maybe this will affect the Premium pack when PS3 is released. So if PS3 has the same price point, 399 dollar, MS could maybe lower their margins from the hdd and sell the premium pack for 349 or something.

MS price cuts will depend on what Sony does with PS3 I guess...

 

[Ginko]

originally posted by xbxdestroya

The fact that they're promising a price cut every year seems also to indicate that either those cuts will be modest, or there's already a 'bonus to MS' buffer built-in to the launch price.

Annual price-cuts were not promised...

RUMOR #3: Microsoft has announced it will reduce the price of the Xbox 360 each year, starting in 2006.

Source: UK game-industry business Web site Gamesindustry.biz.

The official story: See below.

What we heard: Xbox acolytes got all hot and bothered Monday morning, when Gamesindustry.biz ran an article with the headline "Microsoft pledges annual price cuts for 360." The site sourced a Reuters article in which Todd Holmdahl, corporate vice president of the Xbox product group, told Reuters, "We will wind up cost-reducing the product every year." By themselves, Holmdahl's comments do seem to augur a progressively cheaper next-gen console. However, the original Reuters article focuses on how Microsoft lost $4 billion on the first Xbox, and the sentence right before Holmdahl's comments refer to Microsoft's "improved ability to keep costs in check." In that context, is seems like Holmdahl is talking about Microsoft's own costs, versus the cost to consumers--something Microsoft confirmed to GameSpot later that day. "He was referring to the manufacturing process," said a rep for the company, "not the retail price of the console."

Still, that doesn't mean annual Xbox 360 price cuts won't happen. After all, the original Xbox has gone down in price almost every year since it went on sale in 2001 for $299. In 2002, it dropped to $199, then to $179 in 2003, and to $149 in 2004. The PlayStation 2's price has followed a similar trajectory, going from $299 in 2000, to $199 in 2002, then to $179 in 2003, and to $149 in 2004 with the introduction of the new slimline model. So while Holmdahl wasn't pledging annual price cuts, history shows they are likely and may come as soon as next spring--to help blunt the launch of the PlayStation 3.

unless you're talking of another quote from Microsoft that I'm not aware of.

 

[Carl B]

Oh, and even though the components 'are' $200 we still have to pay for R&D, marketing, shipping, storage etc.

@dubyateeeff: Refer to post #27 on this page.

@Ginko: True, good point.