Microsoft cuts costs, analyst predicts price drops

by Jared Rea { Jul 9th 2007 at 2:00PM }

As soon as the first peep of a price drop had left Sony's camp, all eyes have been on Microsoft as to their next move. Dean Takahashi of the San Jose Mercury News may just have the first response: lower production costs via smaller chips. According to Takahashi, Microsoft is currently cooking up microprocessors of the 65-nanometer variety, as opposed to their current 90-nanometer process.

A process that would not only cut the cost of producing the Xbox 360, but also result in less heat being generated by the console itself. Something that, in light of their recent warranty debacle, Microsoft should be very interested in looking at. Auxiliary benefits aside, we're much more interested in hearing about how this could affect the retail price of the Xbox 360. In a brief comment to Next-Generation, Peter Moore gave a decided non-answer on the subject, stating "We have a bunch of different projects that cost reduce and improve quality as you find issues, as does our competition."

Wedbush Morgan analyst Michael Pachter is much more optimistic about a price drop, expecting $50-70 cuts for all Xbox 360 models as soon as this week. How are the odds looking in his favor? Should he be a betting man, Mr. Pachter can probably be found at his desk, scoping out prices for trips to Tahiti.

[Read] Microsoft's next move? Code-name Falcon (Mercury News)
[Read] Microsoft Readies Lower-Cost 360 (Next-Gen)
[Read] Pachter: 360 Price Cut Expected, DS/Wii Unaffected (Gamasutra)

Tags: pricedrop

Reader Comments (Page 1 of 2)

polly @ Jul 9th 2007 6:43PM

That's kind of a bonus ain't it?

Konny @ Jul 9th 2007 2:09PM

Would be a sign of desperation on the part of MS.. if they were confident of 360 and Halo, they would keep the status quo.. given that they missed their June 07 targets by 4.5 million (11.5 vs. 16) they may just do it.

It would also be a phased in approach, like PS3; drop price of premium to clear inventory (and stop making it), drop price of Elite and it takes the place of the premium. What to do with gimped core? I dont know.

Ant @ Jul 9th 2007 2:09PM

it sorta has to happen when people think the ps3 is cheaper now than before.even though its exact same price.

plus unlike with last xbox theyre actively trying to make them cheaper to make not just wasting money.probably reason why so many rrod.they used cheaper parts.

and if they dropped it down by 50 on all the "core" model will be same as wii price.that could make for a good battle for people who want an adult console for price of a childs console.

OMGOMG @ Jul 9th 2007 2:10PM

My name says it all.

Zertoss @ Jul 9th 2007 2:10PM

Great pic. I chuckled.

BPM @ Jul 9th 2007 4:15PM

I agree. "Peter Barker" is one of the most hilarous photochops I can think of from Joystiq.

therpham @ Jul 9th 2007 2:14PM

I just bought a 360 a few days ago and if they did drop the price on all the models I'd be torn between getting the difference back or taking my Premium back for an Elite.

I'd probably just get my money and buy another game with it. Hooray for post-purchase price matching. I hope they do drop the price, anyway.

ElChibo @ Jul 9th 2007 2:16PM

Wow how bout that, and on my E3 predictions I posted on my site a couple days ago, I predicted that Microsoft would announce an Xbox 360 price cut.

I posted them here

Andrew @ Jul 9th 2007 2:17PM

2. Here's what I think MS should do, (not what I think they ARE going to do):

Core: discontinued
Premium: $299
Elite: $399

Wireless networking adapter: $50
HD-DVD Drive: $150

This way a fully packed 360 will = $600, same price as a high end PS3 with an extra 40 GB, but you'll have the option of forgoing the extras

Miles @ Jul 9th 2007 3:39PM

Microsoft has said in a few interviews that the "sweet spot" for moving consoles is $199. So that core is gonna be here for awhile. I do understand that you think it should be gone, but there are some really casual (cheap-asses) gamers who are willing to pick up a bare bones 360.

Mark Korsak @ Jul 9th 2007 2:17PM

whoops, it didnt post the link right:
http://followingrevolution.wordpress.com/2007/07/07/following-revolutions-look-at-e3-rumors-and-predicition/

Szu @ Jul 9th 2007 2:18PM

The battle for second place has begun.

CakeOrDeath @ Jul 9th 2007 2:18PM

Very few consoles have ever lasted as long at their original price as the 360. A price cut must be comming soon.

The core at $230 would certinaly shift some units.

Joshua @ Jul 9th 2007 2:19PM

If they did try to get the new processors into units and on shelves before Christmas it wouldn't be crazy to see the price cut around or just after Halo 3. That would help get old inventory out of stores.

FrankTheCrank @ Jul 9th 2007 2:21PM

Oh my God!! That picture is HILARIOUS!!!

COME ON DOWN!!!

This is what I've been waiting for, a price drop, the 65nm CPU and a quieter DVD drive. NICE!!!

Let's go already, I want to complete my Next Gen console trifecta!!

Sam G. @ Jul 9th 2007 2:24PM

I would have said they were definitely going to cut prices but if they expect to still be profitable AND they plan to keep their new RRoD warranty plan in place, I don't see it happening. They may offer some XBox Live discounts, though.

mccomber @ Jul 9th 2007 3:30PM

I've wondered about that as well. They were real excited about being profitable for the first time ever, and I'm sure investors were too; how will a price drop affect that outlook with everything else they are spending money on in the xbox division?

AirIntake @ Jul 9th 2007 2:23PM

My buddy will pick one up as soon as the price drop hits. He had 3 concerns: Getting Forza 2, RRoD issues, and price. With Forza 2 being bundled, and the 3 year warranty announced, all that he's waiting for is a mere $50 discount and he'll pick it up tomorrow.

And also, if I do have to have Mario as my avatar, can I at least have the kick ass Capt. Lou Albano Mario, instead of the gay anime paper Mario?

Digi Smalls @ Jul 9th 2007 2:25PM

funny, now we're beginning to see the actual advantage of having multiple SKUs. by just rolling down the line with spec upgrades, both Sony and MS can claim their original price points are still in effect.

whether or not this was goal from the beginning with multiple SKUs i don't know, but it definitely seems like a lot of trouble to go through just for corporate pride.

.

3cubedminus3squared @ Jul 9th 2007 2:28PM

Nice changes.
Do we get to pick our own avatars later on, or do we all get Paper Mario?

Joe Smith @ Jul 9th 2007 2:30PM

Why cut price now? Save it for just before holiday. Ship Halo 3 with a full price console in September and sell a buttload of systems with the game. Then at Thanksgiving, cut price $50 and go out with a heavy ad campaign.

After all, Sony didn't really cut price. Prior to the announcement, you could get a PS3 for $499 or $599. After the announcement, you can get a PS3 for $499 or $599. Not much of a price cut!

If Xbox comes out at $249 at holiday with great games on it, it becomes a Nintendo/MS Christmas and Sony goes home sad.

doshey @ Jul 9th 2007 2:32PM

sony gets bashed for coming out with a price drop and M$ is talking about a price drop and they are getting praised, this makes no sences

generaldane @ Jul 9th 2007 2:34PM

yea lets bash Microsoft for dropping their console price

Mark Korsak @ Jul 9th 2007 2:37PM

It's the timing. Remember that the 360 has been out a year longer than the PS3, and Sony spent so much time saying things like the PS3 was probably too cheap. Think about how the 20GB PS3 owners feel while just 7 months after launch they drop the 20GB and drop the 60GB to their price. The 360 has been our for almost 20 months, meaning it's almost time for a price drop.

Ant @ Jul 9th 2007 2:38PM

its because sony didnt change the price skeme any.all they did was make the 60gb the new "crap" ps3 and the 80gb the new "good" ps3.the prices are still $500 and $600.
MS might actually lower the price by a tiny margin(pfft $50 make it 100 MS!)
i really wished they would have made the 20gb ps3 model $400 =(

BPM @ Jul 9th 2007 4:21PM

Ant, the 60GB PS3 is still the "good" one. It still is fully-featured.
The 80GB is the "unnecessary, pricey" one. You pay $100 more for MotorStorm and 20GB more for the HDD. And as I've pointed out before, 20GB extra is NOT worth $40 more. Maybe $10 more, and that's retail. Would be even cheaper wholesale for Sony.

And, I'm not pulling that number out from nowhere. I've checked laptop HDD prices on Newegg. A 60GB one will go for as low as $48, and an 80GB one will go for as low as $55.

waynski1457 @ Jul 9th 2007 2:35PM

love the pic!! Moore should be the new host, lol!

and 360 drop? poo, i was gonna get a second and sell it (dont ask...) but now that means less money...

Pasha @ Jul 9th 2007 2:41PM

Interesting. If the Core drops down to $250, it will become a direct Wii competitor. Well, minus the free game and the controls (which won't matter too much). If they finally come out with a new processor for it, i'll be cashing in on my 2 year protection plan at best buy. Maybe they can bump the elite down to $400 and include the new processor. I would get it just because of HDMI. The extra space on the HD means i don't have to delete demos as often.

sheppy @ Jul 9th 2007 2:41PM

I've been waiting for a $200 core to case mod....

So this would be nice.

polly @ Jul 9th 2007 2:49PM

MS planning a 360 price cut? Thank you Captain Obvious. I wish I was an analyst.

Elite 399
Premium 329
Core 249

A @ Jul 9th 2007 4:03PM

He also gave a timeframe and an amount. Or was that obvious too?

It's getting too fashionable to rank on analysts.

Anticrawl @ Jul 9th 2007 2:54PM

Hey everyone look and listen to me, I'm an analysist. Some day the world will end. Summers will get hotter in the future. One day you will die. Nintendo may make another Mario game and I predict Halo 3 will sell well.

I'd imagine the price cuts won't come until atleast fall though. Then again I'm no analysist.

Spartacus @ Jul 9th 2007 2:55PM

Well, while I personally would like them to hold out on a price drop just a bit longer for some very selfish reasons, for everyone else's sake I hope they drop the pice by $100 to match Sony. Although I think they could get away with a $50 drop in the public eye as Sony's machine still costs $500 and $600. But for those who are "in the know", a $100 drop is more than appropriate.

As for the equal pricing with the PS3...

While I agree the WiFi adapter is overpriced... by about $50... I could care less about HD DVD or Blu-ray drives OR their apparent value. I myself HATE WiFi even for my laptop, let alone for gaming and the vast majority of console owners don't utilize the internet capabilities, so I agree with MS' decision to not include a pricey component in the box. Movie playback is a bonus, not the main attraction of consoles, so I greatly disagree with those who argue the PS3 is a better console due to these non-game related features. Do you NEED Wifi to game? NO. Do you NEED Blu-ray to game? NO (although for PS3 you do). Therefore the 360, even WITHOUT a pricedrop at this point is still the better console due to the fact is has the better GAMES. For those who argue the 360 has more/better games due to it being on the market longer than the PS3, guess what? In a year the 360 will STILL have been on the market longer than the PS3- that's the advantage of releasing a product before your competitors. So here's the breakdown:

Price Point for Gaming:

PS3: $499
360: $399 (though some could argue $299+mem card)
Wii: $250 (plus controllers if you use VC)

Price Point for Home Media Center:

PS3: $499
360: $599
Wii: N/A

Price Point for all options under the Sun:

PS3: $599 + HDMI cable
360: $779 (Elite + HD DVD + WiFi)
Wii: $250 + controllers (if used as a party system)

---

Let's not confuse the purpose of a console by letting Sony and MS' PR bull convince us gamers that we need all the extra crap tacked on to enjoy a true gaming experience. I'd drive a barebones Corvette over a fully loaded Cadillac anyday. Why? Because performance is what counts, not whether my cupholder is heated or not.

Patrick @ Jul 9th 2007 3:34PM

Id like to fix your numbers a bit, for everything
PS3:$1165 Xbox 360:$1150 Wii:$450

thats for all controllers, remotes, headsets and such.

John @ Jul 9th 2007 3:26PM

My 360 gets the occasional DRE, but I think it is mostly the Disc. Even still I don't want to use my warranty unti M$ does something about my DLC on a new machine. I'm in the Navy and don't always have a XBLive connection to verify my identity.

Anticrawl @ Jul 9th 2007 2:57PM

I'd like to add that I like the fact the avatars get smaller as you reply. Cute little mini marios runnin around me to keep me safe. I wanna go play Super Paper Mario *tear*.

tactics @ Jul 9th 2007 3:18PM

is that your website anticrawl?

-"superfan" tactics.

Anticrawl @ Jul 9th 2007 3:00PM

While I won't argue that your numbers are more or less spot on about price. I'd just like to say if you were to need such add-ons then people can be smarter shoppers for the say 360 and come out ahead with more money left over. I could also go and say that dumber and less aware consumers could end up spending 200+ dollars on an hdmi cable from best buy(not that best buy isn't great and all, but don't tell me they don't make their money from accesories, you wouldn't believe the markups).

Anticrawl @ Jul 9th 2007 3:02PM

Also my friends over at Joystiq, I'm sure you know this but your code has quite a few errors in it. I'd suggest pulling it and fixing it rather than editing it while it's in use. I'm sure you all know this but I may be able to help on a more private level.

Anticrawl @ Jul 9th 2007 3:24PM

Yeah, the reply notifications are a little buggy heh, as is the link.

John @ Jul 9th 2007 3:08PM

get an STS and get both... good luck finding a stripped corvette btw. Gates said a looooong time ago that he envisioned a future where people's PCs sat in the livingroom and did games, internet, movies, and all entertainment needs. (this was about 10 years ago, before ps2.) guess what? the future is here, they are not simply johnny come latelys here to take out sony, (thought that is the immediate goal) MS wants to dominate the home tech market (live on your cell phone? windows mobile? media center? zune?) They will become like the OCP corp in robocop making every product under the sun.

Travis @ Jul 9th 2007 11:40PM

New xbox 360...falcon

..... paunch?

Evan @ Jul 9th 2007 3:13PM

Microsoft might drop the price now if only to disrupt Sony. Game consoles have "momentum" like trains - it doesn't take much to keep a train stopped, but it takes a lot to stop a moving train. Give Sony an opportunity to gain momentum now, and it'll be that much harder to battle Sony come Christmas. And battling Sony seems to be more important to Microsoft than making money.

AKM @ Jul 9th 2007 3:30PM

Hard to believe they manage to find even cheaper DVD drive.

rfom @ Jul 9th 2007 3:44PM

The 360 is running out of time - one year, at the most, to try and beat PS3.
The costs fell 40% for 360 in its first year, the and would certianly be more for PS3, maybe 50%, from the original USD840 - axing the PS2 chip, cheaper BR diodes, Sony months faster to 65nm. That means they can actually sell at USD499 without much loss now, and further mark it down to USD399 in a year. The 360 will still be USD100 cheaper, with its awful cheap parts and "extra" for the "options", but the 1200+ PS1/PS2 library (hopefully with PS2 phased out), awesome quality, far superior 2008 lineup and increasing penetration of BR-friendly HD will be a killer combo.

Digi Smalls @ Jul 9th 2007 3:38PM

in all honesty though, what effect would a cheaper, more reliable, potentially smaller and/or quieter 360 have on the market against the PS3?

(nevermind incorporating WiFi or at least making it a cheaper option)

.

Boss Tempo @ Jul 9th 2007 3:41PM

AWESOME picture-

Sony's desperate and dropped their price. A 360 price drop will keep them that way. That's why Sony gets bashed and 360 gets praised.

See? Competition is GOOD for consumers! Hang in there, Sony!

Anticrawl @ Jul 9th 2007 4:39PM

Pretty sure that's not the reason, may be your reason.

chathampax @ Jul 9th 2007 3:46PM

@konny
Desperation move on Microsoft to lower the price? Are you stupid. Also, they missed their target mark of 12 million, not 16 million. Check your facts.

Falls 400,000 units short of goal
Peter Moore has confirmed to GamesIndustry.biz that Microsoft failed to meet its 12 million shipment target for Xbox 360, but said the company is optimistic about the coming holiday season.

And of course they are confident of 360 and Halo 3; most analysts project 6-7 million copies of Halo 3 being sold within the first month. However, to keep their competitive edge over Sony, you have to adjust price when your competitor lowers their price. If they drop the premium to $300 and Elite to $400 with Halo 3 coming in September AND GTA4 in October with exclusive downloadable content, you have a winning combination that might make people think twice of spending $500 on a PS3. The price drop is certainly possible because project "Falcon" (codename for 65nm chip set) is almost ready for production and will reduce costs significantly and increase their reliability in regards to the overheating issue which leads to the dreaded RRofD. Take some micro and macro 101 classes please...