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I read the rumor as an attempt to gut the console to save costs and compete with Sony for price.

It's too late for that, Microsoft. Once your initial sales steam fades your major competition will NOT be the PS4, but the Wii U. They're both weaker than the PS4, but the Wii U has the advantage of being appropriately priced for it's performance.

You don't want a $400 console. You want a $350 one.