Detailed Financial Results: Microsoft E&D Division (home of the 360)

[amirnetz]

Actually, Microsoft provided all the information we need to assess the cost reduction from last year:

"EDD operating income decreased primarily due to increased research and development expenses,
partially offset by decreased cost of revenue. Research and development expenses increased $251 million or 37%,
primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform,
driven by recent acquisitions. Cost of revenue decreased $112 million or 4%, primarily driven by
decreased Xbox 360 manufacturing and warranty costs. "
So Microsoft sold 40% more units (from 4.3M to 6.0M) but the costs manufacturing and warrenty costs actually went down by 112M.

So even without knowing Microsoft's initial cost base for the 360, we can see that it dropped by about 30% + $20 per unit sold.

This makes total sense looking at the likely pricing change from last year: From $330 manufacturing+warrenty costs to $215 last quarter.