Slashdot Mirror

← Back to Stories (view on slashdot.org)

Microsoft Looks To Cut Xbox Costs

Posted by simoniker on from the gotta-lose-less-money dept.

Thanks to an anonymous reader for pointing to The Register's article on Microsoft's resolution to reduce the cost of goods sold in its Xbox division. This news is a byproduct of Steve Ballmer's recent internal Microsoft memo urging greater competitiveness, but the article elaborates a little - "Microsoft makes a significant loss - thought to be over $150 - on each Xbox console it sells... significant steps have already been made in slashing Xbox production costs, including moving manufacturing to China from Hungary, and replacing some components with cheaper alternatives." But this is about reducing Microsoft's financial loss per console, not reducing the amount the consumer pays, so, as the article indicates, "..further [Xbox] price cuts seem unlikely in the near future."

42 comments

  1. Curses! Foiled again! by More+Karma+Than+God · · Score: 3, Funny

    Now M$ will lose less money once I build my Beowulf cluster of Xboxes!

    --
    Go here to create your own Slashdot dis
  2. "Made in China" by Makoss · · Score: 3, Funny

    Now it the good stuff!

    --
    Building a better backup.
    Zettabyte Storage
  3. So They've Had Cheaper Components? by portege00 · · Score: 2, Interesting

    What I'm wondering about is what came along in the last three years that made such a significant cost reduction as to merit moving manufacturing facilities to Hungary? Couldn't they have just used the cheaper components in the beginning and cut costs?

    --
    Trolls make great pets. Adopt one today!
    1. Re:So They've Had Cheaper Components? by samael · · Score: 1, Informative

      It's amazing how much cheaper chips and hard drives have both become in the last two years...

      --
      My Journal
    2. Re:So They've Had Cheaper Components? by Ataru · · Score: 2, Informative

      They've moved from Hungary to China.

    3. Re:So They've Had Cheaper Components? by PainKilleR-CE · · Score: 2, Informative

      While chips and drives have come down in the last two years, you really haven't seen a significant decrease in the cost of 700MHz CPUs and 8GB hard drives, because neither was cutting-edge at the time. The 700MHz CPUs probably are only being manufactured for MS, both because they are not the same as the off-the-shelf 700MHz P3 that people might have bought a couple years ago, and because they simply aren't producing chips that far from their highest clock-cycles. There might still be a few companies producing 8 GB hard drives, but frankly, most of them aren't even producing platters that small any more (and I wouldn't be surprised if the XBox hard drives had larger platters than they are using, at least in the newer ones). Hell, I haven't bought a hard drive that small in almost 5 years. The graphics chip is a special build as well, though it's possible that nVidia is still producing comparable chips for the general market.

      A lot of it comes down to the more common components, like IDE controllers, USB, and so on. The RAM in the system has probably come down in price as well. Other than that, they could've found a more efficient manufacturing process, or some chips that helped make it more efficient. Reducing the size and/or number of layers of the backplane would usually help in the long term, as well.

      --
      -PainKilleR-[CE]
  4. Hmm... by Mmm+coffee · · Score: 4, Interesting

    $150 per console loss and now they're trying to lower the price? They must be getting desperate after having their asses handed to them by Sony and Nintendo. I know that their long term goal is to stream content via the X-Box and gain their monopoly in the living room that way, and were expecting to have to slowly inch their way into the market. Them winning this battle in the long term is a significant part of their plans. But looking at their growing loss per console margins I don't believe that they expected to lose to Sony as hard as they have. As odd as it sounds I think Sony is one of their greatest hurdles to overcome before they gain domination of the living room.

    Looking at the PS3 specifications I believe that there's no way in hell MS will be able to even close to Sony. Until broadband gets common enough for MS to use their streaming content plans to dominate the market, I think Sony is going to be giving a merciless beating. But once they start streaming content I have a feeling that they'll start to nudge Sony off to the side. That's when they'll be able to flex their monopolistic muscles at full power.

    The PS4/X-Box 3 battle is going to be very interesting, methinks.

    1. Re:Hmm... by cuyler · · Score: 4, Informative

      $150 per console loss and now they're trying to lower the price? They must be getting desperate after having...

      Close by wrong. They are trying to reduce the cost of producing the X-Box, not reducing the cost to the comsumer (ie. they'll loose less money).

      Read the last two sentences of the article.

    2. Re:Hmm... by Anonymous Coward · · Score: 0

      they'll loose less money

      loose = to untighten
      lose = to experience a loss, opposite of gain

  5. Sony, Nintendo, ... can SUE ms in Belgium now! by Void · · Score: 4, Interesting

    If this is true, and MS confirms this, then Sony, Nintendo, ... anyone making game consoles can sue MS over this in Belgium. In our law, it is illegal to sell anything with a loss if you _know_ you are selling with loss the moment you sell it. (There are some exceptions for special sales, but not much!) So if Sony, Nintendo want to sue ... file a complaint in Belgium!

    1. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by spongebob · · Score: 1

      Nobody is going to file any kind of complaint on those grounds because Nintendo and Sony do the exact same thing.

    2. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by NeuroKoan · · Score: 1

      IANAL, but I believe the same thing is true in the US. But it wouldn't be Sony or Nintendo's responsibility to bring about the lawsuit. The Federal Government would probably have to file the suit, and since the DoJ is much nicer to MS then in the Clinton administration, I doubt a case would be brought about.

      --

      "However," replied the universe, "The fact has not created in me A sense of obligation."
    3. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by Anonymous Coward · · Score: 0

      Nintendo usually makes money on console sales. not always, but usually.

    4. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by Void · · Score: 1

      Not true ... I think. I know Sony and Nintendo loose money, but at least the parts + assembly cost them less than the price they sell it for. The article about MS seems to indicate that the parts are costing them more than what they sell the x-box for.

    5. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by Zico · · Score: 1

      Nah, spongebob's right. The GameCube almost certainly costs less than what it is sold for, and the PS2 might (I've seen conflicting numbers on this, but I think they're probably making a little money on each one sold). But that's _now_. Earlier in their lifespans, both cost more to make than what they were sold for. So, nobody's going to complain about it when all the console makers do it.

    6. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by MaverickUW · · Score: 1

      Sorry dude, but at least in the US and Japan, Nintendo has never sold the Gamecube or Gameboy advance at a loss. That's actually why the GBA was lowered to $80 originally, cause they were producing them cheap enough that they could make a decent profit even at an $80 sale point.

      Microsoft and Sony were selling the PS2 and X-box at about a $150 loss at the beginning of their consoles lifecycles. Sony, having been doing it for longer, brought the price down (though prolly still losing money), while Microsoft has had to lower their prices earlier to keep up with Sony, thus keeping the rather large margin of production costs.

    7. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by spongebob · · Score: 1

      I beleive that the comment I made about the big N might be wrong, but I am postive about Sony. They charge publishers an $8-$11 royalty on each copy of a game they produce. Note that's copies produced, not sold.

      Either way, the console manufacturers are getting their money back in the long run anyways. If it cost them more to do it than they made, how could gaming be Sony's most profitable business?

    8. Re:Sony, Nintendo, ... can SUE ms in Belgium now! by PainKilleR-CE · · Score: 1

      IANAL, but I believe the same thing is true in the US. But it wouldn't be Sony or Nintendo's responsibility to bring about the lawsuit. The Federal Government would probably have to file the suit, and since the DoJ is much nicer to MS then in the Clinton administration, I doubt a case would be brought about.

      It's not illegal in the US if the market strategy in use shows a return based on the ownership of the item being sold at a loss. In other words, MS (and every major console maker) expects to make $X per every copy of every game produced/sold for their product, and by producing/selling Y number of games per console sold, they can recover $Z lost on the console itself. Now, in the long run everyone wants to make a profit on each console sold as well, but in the short term it pays to sell below cost, because getting people to produce Y number of games requires market penetration (people won't produce games for consoles no one owns).

      Razor manufacturers (Gilette, Schick, etc) use the same business model, sell the handle for next to nothing, then sell the razors at $2/each to bring in the big bucks. Hell, Gilette's been sending handles w/ 2-4 blades to people in the mail free for years. It's a much smaller investment for an individual to change razors, which means the initial cost of consoles much more important in the same market model, but overall the model applies equally to both markets (and iirc MS even stated when they went into consoles that they were based on the model of disposable razors).

      --
      -PainKilleR-[CE]
  6. M$ is dead, long live M$ by denthijs · · Score: 0

    just trolling but i had ta doo it.,
    YiHAAA!!
    any bad news for the folks in redmont is good news in my book

    just untill there down to 30% of the market orso, ..

  7. Re:Sony, ... can, maybe, SUE ms in Belgium, now! by denthijs · · Score: 0

    Dutch law aswell..
    IANAL but i think it IS legal to sell one product at a loss (call it 'promotion') if you make up for it in other markets...

    but , as stated, .. ianal

  8. Money by clu76 · · Score: 4, Interesting

    Microsoft doubled their loss on the Xbox this past year, losing $190 million before taxes. But I'm faily sure that Microsoft more than made up for this loss in their other divisions.

    Sony made a profit of $964 million for the fiscal year. "Sony (SNE) shares are down 40 percent this year, following declines of 8 percent in 2002, 35 percent in 2001 and 51 percent in 2000. "

    Nintendo made a profit of $553 million. Their shares are also down, at around 35%. Not bad considering the competition.

    --
    the cosmos in 20 words or less: thumbuki.com
    1. Re:Money by burns210 · · Score: 2, Insightful

      Microsoft went into the console market with 2 billion dollars set iside... they said "ok, we got 2 billion, buy a cool console and sell it to as many people as possible, we can make money later"... the plan worked, and they are number 2 in the game market.

    2. Re:Money by Patoski · · Score: 1

      Microsoft went into the console market with 2 billion dollars set iside... they said "ok, we got 2 billion, buy a cool console and sell it to as many people as possible, we can make money later"... the plan worked, and they are number 2 in the game market.

      I'd say the plan worked once MS actually starts making money off of the XBox instead of losing boatloads of cash. The tombstones of console companies is written with the epitaph "We we were second place!" Sega comes to mind as an example.

      --
      G. Washington on Government "it is force. Like fire, it is a dangerous servant and a fearful master."
    3. Re:Money by drinkypoo · · Score: 1

      The thing you and hundreds of others are missing is that they don't NEED to make money on the console. They are doing this to make inroads into the consumer electronics market. They only have to look successful in the console market, which they can do by constantly throwing money at the problem and blowing up their Xbox balloon with hype. Eventually they'll be selling a super-Xbox which works as a PVR and for which they can get more money, amongst a ton of other devices. Eventually they probably WILL make the console division profitable, as soon as they get a fully-DRM platform going...

      --
      "You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
  9. From Hungary (?) to China? by sabNetwork · · Score: 1

    I thought that Microsoft was producing Xbox goods in Mexico. When the Xbox was first released, there was a big commotion about how Microsoft saves money by having the hardware produced in Mexico (or some other nearby country).

    Did Microsoft shift production from Mexico to Hungary? If so, why?

    1. Re:From Hungary (?) to China? by Ataru · · Score: 1

      The Guadalajara plant makes XBoxen for the US market. The Flextronics plant in Hungary produced for the Japanese market, then for the European launch. This has now been relocated to China.

    2. Re:From Hungary (?) to China? by Guppy06 · · Score: 0, Flamebait

      "Make sure that all your assets are actually owned by someone you trust (your SO, spouse, sibling, etc.).

      Because if it weren't totally bass-ackwards, it wouldn't be Microsoft.

  10. X-laptop by angryflute · · Score: 4, Interesting

    I've wondered, have they considered going to a laptop motherboard manufacturer to make the innards of the Xbox?

    I never understood why the Xbox's design seems to be that of a PC scaled down, when it seems like it would make more sense to design it as a laptop minus the LCD screen. It would also greatly reduce the size of the Xbox. Laptops today have processors well over 1GB, and on-board 3D graphics chipsets that are just as good as the Xbox's.

    Or is it just too expensive to manufacture the Xbox this way?

    1. Re:X-laptop by RzUpAnmsCwrds · · Score: 2, Informative

      No, but seriously changing the hardware design would break quite a few games. The only thing that they could probably do safely would be to switch to a NForce2 chipset board with a custom IGP (it needs to support shaders at least as well as the GeForce3.5 in the XBox). The XBox is actually quite similar to the NForce platform.

    2. Re:X-laptop by Rolman · · Score: 1

      Actually, I tried to do the same with an embedded system we developed at our company.

      Thing is, laptop design and manufacturing is orders of magnitude more expensive than typical PCs. The motherboard design has a completely different approach, as there are other elements to care about, like the type of packaging for the chips (TSOP and such), the thermal design, power consumption, case design, etc. Then there are things like Pilot Runs and Engineering Verification Tests, which are three or four steps for a PC, while the same are performed six or seven times for laptops.

      Because performance was the only thing Microsoft cared about when designing the Xbox, I can imagine the XPU and XCP (the chipsets on the Xbox) being a real pain to work with, even with their current design. Just look at the huge heatsink and fan inside the Xbox, and if you want to be really scared then look at the power consumption rate (around 200W when the other consoles and a typical laptop don't surpass 50W).

      Just thinking about this would be enough to give the Xbox team a headache. I don't think they would ever consider it because performance is their only marketing advantage, and that could also hurt them if they want to make a portable system.

      If you want a very good, efficient design in terms of "MIPS per Watt" and physical space, go for Gamecube, you have your laptop design right there: tiny motherboard, low power consumption, TSOPII chip packaging, expansion ports, etc., hell, it even sports a handle :) And there are battery/screen solutions so portability is also covered.

      --
      - Otaku no naka no otaku, otaking da!!!
  11. Reducing cost not price by Anonymous Coward · · Score: 0
    MS is hemorrhaging badly with the xbox. Eventually, as its customer base erodes, revenue from sales from their two cash cows MS-Windows and MS-Office are going to dip down below the point where that can continue to float catastrophes like xbox, smartphone, MSN, tablet PC and others. Or, since governments and businesses are starting to call it on bullshit, a single large fine could take it out for good.

    MS is putting a lot into marketing right now and Ballmer has announced that more is coming. However, once enough execs, foreign governments, and stock funds have divested (i.e. found someone else to be left holding the bag) even that won't be necessary.

  12. Screwing Microsoft by Man+In+Black · · Score: 2, Funny

    "Microsoft makes a significant loss - thought to be over $150 - on each Xbox console it sells..."

    Hmm... maybe I should buy one after all >:)

    --
    -"One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man." -EH
  13. Re:Sony, ... can, maybe, SUE ms in Belgium, now! by Void · · Score: 1

    hmm, well, .nl and .be laws are quite different on that part. For instance "ginging away stuff of a certain value" is illegal in .be. Giving a mobile phone for free (or almost free) if one signs a contract with an operator is illegal in .be. It is however legal in .nl, .gb and more than half of Europe... But IANAL either :)

  14. True profit loss by Mupp252 · · Score: 1

    The loss per console is "thought to be over $150"? Has anyone ever posted the true spec sheet showing cost of manufacturing and assembling of parts? All I keep reading are either people who are a cousin of a sister of a brother of an uncle who works there or some know-it-all just looking to sucker punch Microsoft.

    1. Re:True profit loss by Babbster · · Score: 1
      Indeed, indeed. That $150 number that they list as being "thought" to be accurate is the number from launch. It seems to stretch credibility that the number hasn't gone down since that time.

      Of course, I don't see the reason for the story in the first place, except as an excuse to point out once again that Microsoft is losing money on Xbox consoles (something that was part of the MS plan from the beginning). Any hardware manufacturer is going to look for ways to cut production costs - those who don't are beyond stupid.

    2. Re:True profit loss by Daetrin · · Score: 1
      The price has probably been going down, but they've also been forced into repeated price cuts in order to keep up with Sony. Is Sony's prices have gone down $100 since launch, it would be reasonable to assume the same of Microsoft to, in which case they'd still be losing $150 per console at the current price.

      It's news because the reason they're doing going to such lenghts to do so at this particular time is the _huge_ losses they're taking, far in excess of what they predicted, and the shareholders, and therefore the higher-ups, are getting upset about it.

      --
      This Space Intentionally Left Blank
    3. Re:True profit loss by Babbster · · Score: 1
      Why would shareholders be upset? They're up almost $3 at $23.68 a share since their past-year low of $20.70 last July. Their overall profits still exceeded forecasts in the last quarter, beating analyst forecasts by a penny per share (that's a lot of pennies). All this despite being in the middle of a big, toothy bear market.

      Don't miss the forest while staring so intently at this one Microsoft tree.

    4. Re:True profit loss by Mupp252 · · Score: 1

      I completely agree. The cost for manufacturing the consoles parts has (Beyond a shadow of a doubt.) gone down since launch date. I just wish someone around here would have the hard documentation to back this article/post up before we go scrutinizing their business model.

      It just seems like everyone around here wants to ink the Xbox's death and destruction. Kinda reminds me when the Dreamcast was a major competitor.

    5. Re:True profit loss by jafuser · · Score: 1

      Has anyone ever posted the true spec sheet showing cost of manufacturing and assembling of parts?

      Sort of, but you'll have to pay.

      --
      Please consider making an automatic monthly recurring donation to the EFF
    6. Re:True profit loss by PainKilleR-CE · · Score: 1

      http://www.eetimes.com/sys/uth/OEG20020326S0044

      It's a slightly older (~1 year, possibly older because I remember seeing it in the print version around the time XBox was released) article, but it is free. You could probably price out the major parts for yourself from the listing, but overall it's still going to be an estimate without MS releasing the prices they're getting for the parts. Then there's the whole manufacturing process itself...

      --
      -PainKilleR-[CE]
  15. Recent price cuts in Australia by roesti · · Score: 1

    As of 30 May 2003, the prices of both Xbox and Playstation 2 in Australia dropped to AUD 329, from AUD 399 previously. (You can get a Gamecube with Metroid Prime for under AUD 300. Of course, the 'Cube isn't marketed very well and has struggled here.)

    That said, most of the shops here would sell you a console with a big pile of stuff bundled in: Gamecube plus Metroid Prime; PS2 plus movies; Xbox plus Halo (still), Amped (still) and discount vouchers.

    --
    Attack its weak point for massive damage!
  16. Hey Bill, I know how! by Anonymous Coward · · Score: 0

    STOP MAKING IT!!