Information Technology Is Microsoft losing money on Xbox One sales?

Information Technology Is Microsoft losing money on Xbox One sales?

2013/11/27

Does Microsoft’s new Xbox One cost more to make than its price tag in the shops?

This seems to be the reality, according to an early teardown of the games console by analyst IHS.

It seems the hardware loss can be compensated for though sales of game.

“The combined hardware and manufacturing cost of Microsoft’s new Xbox One amounts to $471, suggesting that Microsoft is subsidising the cost of the video game console at the time of launch,” said IHS.

The Xbox One carries a bill of materials of $457, according to preliminary results from the Teardown Analysis Service at IHS.

Manufacturing is estimated at $14, which means the console’s total cost of $471 is only $28 less than the retail price of $499.

IHS identified a similar situation with rival console, the new PlayStation 4 from Sony, which carries a hardware and manufacturing cost of only $18 lower than its retail price, according to the preliminary IHS teardown.

“Just like the PlayStation 4, Microsoft initially will take a loss on each Xbox One sold when other expenses are added into the equation,” said IHS.

“For both Microsoft and Sony, their latest-generation video game console hardware is unprofitable at the time of release, requiring the companies to subsidise it initially,” said Steve Mather, senior principal analyst for IHS.

“However, these companies easily can largely compensate for their losses though sales of highly lucrative game titles.”

Microsoft maybe using the Xbox One as a loss-leader in order to penetrate the home multimedia market.

“The Xbox One is designed to serve as a beachhead in the home for Microsoft, with the console’s capability to interact with—and interface to—other devices, such as televisions, set-top boxes, smartphones and tablets,” Mather noted.

The Xbox One’s core architecture is very similar to the PlayStation 4, with most of the functionality of the two systems residing in highly integrated system-on-chip (SOC) devices supplied by Advanced Micro Devices.

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