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While manufacturing costs of Microsoft Corp.’s Xbox One video game console are considerably below the initial costs of the Xbox 360, they are noticeably higher than those of Sony Corp.’s PlayStation 4. A good news is that total building costs of Xbox One are below its retail price, which means that the software giant is not losing a lot of amount of money on every unit and can even profit provided that it sells 3-4 games with each one. A bad news is that it will have limited price-cut abilities.

It Takes $471 to Build Microsoft Xbox One

According to preliminary results from the teardown analysis conducted by IHS, the Xbox One carries a bill of materials (BOM) of $457; manufacturing is estimated at $14, which means the console’s total cost of $471 is only $28 less than the retail price of $499. Theoretically, this means that Microsoft is subsidizing the cost of the video game console at the time of launch. This is very similar to the new PlayStation 4 from Sony Corp., which carries a hardware and manufacturing cost of only $18 lower than its retail price, according to the preliminary IHS teardown information released last week. Just like the PlayStation 4, Microsoft initially will take a loss on each Xbox One sold when other expenses are added into the equation.


The teardown assessments are preliminary in nature, account only for hardware and manufacturing costs, and do not include other expenses such as software, licensing, royalties or additional expenditures.

“For both Microsoft and Sony, their latest-generation video game console hardware is unprofitable at the time of release, requiring the companies to subsidize it initially. However, these companies easily can largely compensate for their losses though sales of highly lucrative game titles. Meanwhile, as the cost to produce the consoles decreases according to the normal learning-curve dynamics in the electronics industry, the companies can cut their retail pricing—or pad their profits. Over time, Microsoft is likely to reduce the retail price of the Xbox One in order to maintain sales momentum,” said Steve Mather, senior principal analyst for IHS.


Microsoft Xbox One disassembled. Click to enlarge. Image by iFixit.com.

Microsoft may also be more willing to take a loss on hardware sales with the Xbox One than it has for its previous-generation products.

“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. Gaining such a strategic advantage in the battle to control the connected home and Internet-enabled living room is well worth having the Xbox One act as a loss leader for Microsoft,” noted Mr. Maher.

One Big AMD Chip to Rule It All

Like the PlayStation 4, the Xbox One is based on a highly integrated SoC processor from AMD that performs the vast majority of the functions in the console. The AMD-designed chip combines eight x86 Jaguar cores, custom AMD Radeon graphics processing units based on GCN architecture with 768 stream processors, various special-purpose and multimedia accelerators, multi-channel DDR3 memory controller as well as 32MB of high-speed SRAM cache buffer.


Key chips of Microsoft Xbox One. Click to enlarge. Image by iFixit.com.

Microsoft Xbox One main SoC, which is marked as X887732-001 DG3001FEG84HR, was made in Taiwan by TSMC and then tested and packed at AMD facilities in Malaysia. Another Xbox One chip located on the mainboard and marked as X861949-005 T6WD5XBG-0003 has its own eMMC NAND memory buffer, but its purpose is unclear. It may be expected that the chip is another special-purpose SoC that speeds-up storage performance and does processing in idle mode.

“It is interesting that AMD has taken over the core central processing unit (CPU) and graphic processing unit (GPU) in both the Xbox One and PlayStation 4. This is a very different landscape from the hardware of just a few years ago, when IBM was dominating the core CPU slot in both the Xbox 360 and PlayStation 3 consoles,” said Andrew Rassweiler, senior director, IHS teardown service.


Mainboard of Microsoft Xbox One. Click to enlarge. Image by iFixit.com.

It is noteworthy that while the system-on-chip inside the Xbox One features nearly 50% lower graphics horsepower compared to that of the chip inside the PlayStation 4, it is actually more expensive due to SRAM cache. Preliminary modeling from IHS suggests that the AMD chip in the Xbox One should cost about 10% more than the device it sells to Sony for the PS4. The AMD process in the Xbox One costs $110, compared to $100 for the PlayStation 4.

“Although the AMD chips are unique in the two consoles, they appear very similar in many ways. Both chips are built in 28nm process technology, have the same number of CPU cores, and possess similar silicon die surface area between the two, suggesting similar amounts of functionality and processing power. Even the net power requirements for the two consoles are very much alike, which further underscores functional similarity. The two consoles are not clones, but are definitely related,” noted Mr. Rassweiler.

Kinect: the Xbox One’s Not-So-Secret Sauce

The biggest factor increasing the hardware cost of the Xbox One compared to the PlayStation 4 is Microsoft’s inclusion of the new-generation Kinect system as a standard feature of its console. The Kinect adds $75 to the Xbox One’s BOM and manufacturing cost.

The completely redesigned Kinect sensor that features 1920*1080 RGB camera, improved infrared sensors and enhanced voice controls. The more advanced optics should provide better images to the sensor, but are more expensive. The three infrared emitters in the new version of the Kinect also contain some elaborate optics that IHS is still analyzing.


Microsoft Kinect 2 disassembled. Click to enlarge. Image by iFixit.com.

Because of the increased sophistication, the new generation of the Kinect is estimated to be $75, which is more expensive than the older version, which carried a $64 BOM and manufacturing cost back in 2010.


Microsoft Kinect 2 disassembled. Click to enlarge. Image by iFixit.com.

Other Components

One other major cost driver of the Xbox One compared to the PlayStation 4 is the optical drive. Microsoft uses a Blu-ray drive made by Lite-On, compared to what IHS believes to be an in-house, Sony-made device in the PlayStation 4. The Lite-On drive accounts for $32 of the Xbox One BOM.

The power supply on the Xbox One also represents a $25 cost for the Xbox One. Unlike the PlayStation 4 which featured an internal power supply, Microsoft adds bulk and cost by employing an external power supply for the Xbox One.

 

Tags: Microsoft, Xbox One, Xbox, Durango, AMD, Fusion, Radeon, Jaguar, x86

Discussion

Comments currently: 3
Discussion started: 11/27/13 11:14:03 AM
Latest comment: 11/28/13 01:51:57 PM
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1. 
I Think having an External Power Supply is much safer and easy to replace.
2 2 [Posted by: xentar  | Date: 11/27/13 11:14:03 AM]
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I owned the ps1, ps2 or ps3 systems over the years I've never had one go out on me. my ps1 is 18 years old and still works fine. can't say the same about my xbox 360's had to replace the power brick twice on it.
0 0 [Posted by: SteelCity1981  | Date: 11/28/13 01:51:57 PM]
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2. 
take away the Kinect and it would only cost them 396 dollars to make. granted they would only make a 4 dollar profit per each console if they sold it for 400 dollars but they would sell more of them if they bundled the xbox one without a Kinect and charged 400 bucks at the same time.
0 0 [Posted by: SteelCity1981  | Date: 11/27/13 09:09:55 PM]
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