Hey...Microsoft deserves to make profit, because they made sure their hard drive was iron clad. Sony was dumb enough to make a hard drive that could easily be replaced.

That would be a stab in the heart to Sony. They cannot afford to drop price any further, while not making profit. This is the very reason they extended the lifespan of the PS3. If they drop price to compete, they will hurt themselves with even more billion dollar losses. Microsoft has already broken even and is making profit, so they can afford to drop price.

 OFT

You assume a few (wrong) things:

1) You assume that the Xbox 360 is either breaking even, or barely making a profit

2) That the Jasper chipset has to drop prices on the X360 by $50 to be worthwhile.

The issue with that is that Microsoft, by all estimations is making a killing on the Xbox 360 hardware by now. iSupply, in November 2006, tore the Xbox 360 down, and showed that component + manufacturing costs were around $323.00 to build. This was before the Falcon (but also before the 2nd heatsink). In the same briefing, they state the PS3 was around $800 to build. And for all rumors and stories, seems to of been the actual cost per console.

So do you REALLY think that in 20 months, the Xbox 360 costs $23 less to make, whereas the Playstation 3 costs $400 less to make? C'mon! I am certain that the Arcade, at $199, will still be a profitable venture for Microsoft, just like the PS3 is closing in on profitability. Want some answers? Microsoft trims Xbox 360 costs by 40% in 1 year. TG Daily states that the 65nm GPU's have been in production since May. Lets assume a 2-3 month lead time from production and acqusition to retail (which is now). That TG link also has information about the 'Xbox 560' which will be similar to the PS2 slim, which should launch next year around the same time.

So even if Jasper doesn't reduce the price $50 (which it seems that the 60GB revision has included far more than just the HDD, as the packages weigh 2lbs less than the standard 20GB pro's), it is very unlikely that it's preventing them from making money on the console, on a per-unit sold basis.

 I meant to QFT this one, not the last one. Man this forum is different from what im used to, lol. The quote button is usually overhead. 

Good information.

I added a few more interesting links about Xbox 360 costs.

40% reduction in cost from initial date of manufacture (Sept/Oct 05) to ~ November 2006.

Xbox 360 Slim to launch next year with the all-in-one valhalla chip.

And some other stuff. At any rate, Microsoft is very good at getting the cheapest, best deals for their system. Just like Sony and Nintendo are.

I find it highly suspect when anyone claims that Microsoft could not perform such a price drop due to profitability. Then in the next sentence mention the ability of Sony to match such a price drop. That shows a discreet lack of critical thought. Sony are the ones in the real financial bind. Their gaming division may have turned a modest profit last quarter, but that is not because the PS3 has reached production price parody. Which does nothing for the huge money pit the console already carved out getting there.

Everyone is oblivious to the divisions expansion with the shift of Sony Online Entertainment. Which was actually part of Sony Pictures prior to the move. Though poorly thought of by gamers did bring in roughly two hundred million dollars last year for Sony. Shows what you can do when you have a stable of old products you squeeze for every penny. Then you have the PS2 and the PSP both profitable products, and a plethora of development houses. Basically it is not that the PS3 has been profitable merely that it is not bleeding as much money as it once was.

Microsoft is in a far different situation. They have four advantages Sony does not have. The first advantage is the longer production run, and that latest cost cutting iteration. The Second is Microsoft holding firm on pricing the price of the console has hardly moved in comparison to the PS3. Third Microsoft gains a secondary revenue stream from their console, and it helps to defer pricing losses. Effectively the longer a customer pays for Live the less Microsoft lost on initial sale. Sony can never directly recoup hardware losses. Except through licensing which is number four. Microsoft has more licensing to feed off of then Sony. The attach rate on their console is wonderful, and with it growing it will help defer costs further.

What some here believe is that currently the 360 is hardly profitable. However there is no actual proof of that. The machine resides within a division that is reported as a whole, and there are a great many products within that division both present and future. That is not even including research. For all we know the hardware may be far more profitable then many suspect. In fact given the other price cuts this year it is probably very likely that is the case. This would not be the first time this year Microsoft would have cut eighty dollars off of one of its consoles.

Would such a price cut be effective. Yes it would be very effective. The arcade would be at a mass consumption price, and any poster who claims to be concerned should be. Not only would that price hurt the PS3, but it would also really hurt the PS2. After all it would be hard to argue that a Arcade with a game included is not a superior product to a eight year old last gen console. Which means if this price is true the PS2 would probably be pushed out of the North American market by years end. That would hurt Sony, and make any PS3 price cutting that much harder.

I think this is probable, because Microsoft has done the same thing in other markets earlier this year. Not only that but it would be the perfect move to really grind PS3 sales to a halt.

And you know that MS's XBox division posted $420m in profit this year. If we ignore the roughly $1b in losses the previous year due to RROD, that means MS had a $1.3b turnaround in just one year. 

Let's say for argument's sake you are right and MS has not lowered the cost of the Core to $200. We know it was profiting a year ago, so that means the cost then was less than $280, and the new chipset is even cheaper. Let's say they knocked the cost down to $240. That means they'll be losing $40 on each Core console (which I doubt). Let's also assume that they will take similar hits on the Premium and Elite. That means that they'd be losing roughly $400m on console manufacturing and sales. If MS experiences similar growth next year as compared to this, they could easily take that hit and still turn a profit. In the end the one thing that most benefits MS here is expanding the consumer base.

Let's look at the yearly numbers again. In 2008, sales via the 360 were roughly $8b. That was up from about $6b the previous year. That was about 30% growth in profit during at time the user base grew 100% (from about 10m last July, to 20m this July). MS is looking for similar growth (to 30m) over the next 12 months, and I would be amazed if it didn't see a similar increase in sales (another $2b or so) due to that increased user base. That makes it very easy for them to absorb the costs of manufacturing and still maintain a healthy profit in that division.

Ugh...most people don't even understand how the mass market responds to price drop after the first 3 years. At least some do, but it's sad the small amount.