http://www.gamepro.com/news.cfm?article_id=120968

The San Jose Mercury News is reporting today that a lower-cost Xbox 360, code-named Falcon, is already in the works. The new design features a smaller, 65-nanometer processor as opposed to the current 90-nanometer machine. The rumored chip will likely be easier to manufacture, thereby costing less, and it emits less heat likely causing fewer system failures.

Analyst Micheal Pachter said on Monday that Microsoft will, in fact, reduce the price of the Xbox 360 tomorrow at the start of the company's E3 press briefing. He believes the $299 Core will drop to $249; the $399 Premium to drop to $349; and the newly released $479 Elite to drop to $399 in response to lower-than-expected sales of all three systems.

In a related story, Microsoft's VP of Xbox Japan Darren Huston told reporters today that the company has no plans to cut the Japanese price of the Xbox 360 given its competitive pricing in the territory.

Here we go, price wars have begun. No price cut in Japan but that's not really a big deal. Core system at 250 dollars (not counting the fact that you have to buy a memory card) at the Wii's price. Premium at 350 sounds like  a good deal and Elite at 400 is the new Premium. 

$400 for the Elite sounds realllllllllly tempting. I wonder if this will come true ...

80 dollar drop on the elite this quickly? Now that was way too fast (low sales confirmed).

If they do this it would pretty much confirm yet another year in the red for the 360.

Will the Xbox ever turn a profit?

well it is pachter...so who knows he seems to state things all the time.

thats cool, but I doubt it will happen, or is it that they love to lose money?

Guys, this is Pachter. Let's not get our hopes up. =P

People were talking about the billion dollars in repair costs being insignificant to MS, but really it's like 1/5 of MS' total yearly net income or 1/12 of their revenue down the drain. I mean they can take it but it's definitely not insignificant.

Wasn't it him who yesterday predicted this wouldn't happen?

It's kind of a pickle situation. The 360 has been out for 20 months with no price drop, and they just released the Elite in April. If they cut the price on the core and premium models, not cutting the price of the Elite would be a bad idea, especially since Sony just slashed 100 off of their line.

Also, it seems like the shipments for Elite's have been either really small or non-existant. A new shipment just came out like at the end of last week, and it sold out again on Amazon. I saw my first Elite in store last friday, and I talked to an EB employee today (anecdotal) who said they are still hard to get their hands on. I'm guessing they held back on shipping Elites to implement the extra heatsink (as I also heard on another forum that someone picked up an Elite and it had the extra heatsink).

The Xbox division may start seeing profit by quarters shortly, but not as an entire division, no. The 65nm die shrink will help, but I don't think it is Microsoft's driving motivation to be just profitable. They have other plans for the Xbox line, mostly trying to get into your living room before Sony does.