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IHS: Xbox One Breakdown Shows Microsoft Nearly Breaking Even

26 Nov, 2013 By: Chris Tribbey

Just like with Sony and the PlayStation 4, Microsoft is taking a slight loss on each Xbox One it sells, according to a teardown analysis by research firm IHS.

The combined hardware and manufacturing costs of the system comes out to $471, $28 less than the retail price of $499. With other expenses involved with getting the system to retail factored in, Microsoft is taking an initial loss on each console sold, IHS reported.

For the PS4, the research firm’s teardown analysis has material and manufacturing costs at $381. The PS4 retails for $399.

“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,” said Steve Mather, senior principal analyst for IHS. “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,” he continued.

Mather said Microsoft seems more willing to take a loss on hardware sales for the Xbox One than with previous gaming consoles, likely because the system is acting as a loss leader for the company.

“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,” he said.

The inclusion of the voice- and motion-control Kinect interface is partly responsible for driving up the system’s hardware cost, accounting for $75 in manufacturing and parts. The Blu-ray Disc optical drive — a first for any Xbox — accounts for $32.

About the Author: Chris Tribbey

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