Microsoft Corp., the world's largest software maker, loses at least $153 (U.S.) on each Xbox 360 video game console it sells, based on just the cost of components and assembly, a research firm says.
Parts such as processors and manufacturing cost $552.27 for each machine that retails at $399, El Segundo, Calif.-based iSuppli said yesterday. Marketing and shipping costs aren't included in estimates (iSuppli's "teardown" analysis of the Xbox 360 is here).
Microsoft, which has spent more than $12-billion developing its games machines, released the Xbox 360 Tuesday in time for the holidays and ahead of Sony Corp.'s PlayStation 3.
However, there have been reports of Xbox 360 owners having problems such as screens going black and the appearance of a variety of error messages. Microsoft said yesterday that there had been some "isolated reports" of such issues, but said this was normal for such a large product launch.
Chairman Bill Gates is betting the Xbox, Microsoft's only unprofitable unit last year, will help bolster sales of other products to consumers. The Xbox 360 will be profitable over the life of the machine, he said.
"As we go through the cycle, component costs go down significantly," said analyst Evan Wilson at Pacific Crest Securities in Portland, Ore. And royalty fees Microsoft gets from game publishers "will grow much more rapidly when the installed base of Xboxes increases."
Microsoft replaced Intel Corp. as its processor supplier and, like Japan's Sony, is relying on Armonk, N.Y.-based International Business Machines Corp., which makes 60 per cent of Xbox parts, iSuppli said.
The premium version of the games machine uses an IBM processor that costs $106, according to iSuppli, noting that other IBM chips bring the total cost of chips and integrated circuits to $340 a console.
Microsoft gets $7 to $8 hardware royalties for each game made by outside companies, and more on games produced by its own game studio, Harris Nesbitt analyst Edward Williams said in a Nov. 8 report.
Another $141 worth of components include semiconductors that provide graphics supplied by Markham, Ont.-based ATI Technologies Inc. and memory and linking devices from Japan's NEC Corp.'s, the report said. Packaging, a wireless Internet link, power supply, cables and the instruction manuals make up the rest of the price.
The Xbox is available in a basic model for $299 and a $399 version with a hard drive and a wireless controller.
Celestica Inc. of Toronto, Flextronics International Ltd. of Singapore and Wistron Corp. of Taiwan are building the machines.
Microsoft hasn't disclosed the wholesale price of the Xbox, which has sold out at most stores. Buyers have been flipping the video game consoles by the thousands on Web auction site eBay Inc. for almost twice the retail price.