Microsoft Mulls Xbox 360 Price Drop – Report [UPDATED]

by Anton Shilov
09/30/2006 | 11:58 PM

UPDATE: Adding background details.

Microsoft Corp., the world’s No. 2 designer of game consoles, may be considering a price-cut on its Xbox 360 system in an attempt to more efficiently compete against Sony, which is due to release a limited amount of PlayStation 3 entertainment machines this November. While the software company denies the plan, it had reportedly contacted console manufacturers to review the costs of components and may decrease the pricing of the Xbox 360 in Q1 2007.

“Microsoft […] has negotiated reduced production costs for the Xbox 360 with Taiwan-based manufacturing partners,” claims a news-story at DigiTimes web-site, citing sources close to manufacturers.

According to alleged estimates by makers, total production cost can be reduced by 15% – 20% due to diminishing costs for most components combined with increased production volumes and lowering defect rates. If the information about 15% – 20% is correct, then the production cost reduction could be as high as $60 to $80, whereas Microsoft’s target is to reduce the price of Xbox 360 premium flavour to $299, it is claimed. Microsoft would also want lower manufacturing costs to be able to integrate an HD DVD drive into its console, something, which it reportedly plans to do.

Earlier Microsoft said that it would not slash the Xbox 360 price, but would offer certain “surprises”, which would improve value of the game console to end-users. Nevertheless, it had reportedly made its retail partners in the UK to drop retail price of the Xbox 360 core system to £199 ($377) from £209 ($396) earlier. Pricing of the better-bundled Xbox 360 variation remained on the level of £279 ($528). When asked for comments, Microsoft representatives in the UK declined to elaborate and said that the price-drop was conducted by retailers itself.

There are ongoing rumours, according to The Inquirer web-site, that Microsoft may drop the price of the Xbox 360 already this year to cause maximum damage for Sony’s PlayStation 3 launch. However, Chartered is set to begin shipments of lower-priced 65nm Xbox 360 custom central processing units only in Q1 2007 and Microsoft may not want to drop the price ahead of a major component cost reduction so not to lose money during holiday season, when the demand for the consoles is naturally higher. Moreover, Sony is projected to ramp up PlayStation 3 production in Q1 or Q2 2007 and launch the gaming machine in the European Union in March, which may be the right time for Microsoft Xbox 360 to compete against the No. 1 console maker with price reduction methods.

Microsoft Xbox 360 console is based around microprocessor developed by IBM, high-definition visual processing unit designed by ATI Technologies, I/O controller engineered by SiS and some other key components. The gaming machine will provide a broad set of multimedia capabilities in addition to games. Depending on the bundle, Microsoft Xbox 360 currently costs $299 or $399 in the U.S.