Why Microsoft Corporation (NASDAQ:MSFT) Is Sad About Xbox One?

Posted by Chris Bell November 27, 2013 0 Comment 1894 views

Microsoft Corporation (NASDAQ:MSFT)’s next generation gaming console Xbox One also hit one million sales mark within 24 hours of its official launch last week. The gaming console launched in 13 markets set a new sales record for Microsoft and sold out at most retailers. This is particularly of importance as the rival, Sony Corporation (ADR) (NYSE:SNE)’s next-gen gaming console PlayStation 4 also hit similar sales figures with its launch earlier. While Sony sales its console for $399.99, Microsoft has priced its console for $499.99.

Xbox One: Inside Out

Research firm IHS Inc. (NYSE:IHS) dissected Xbox One to find out what electronics have been used in its make and approximate it production cost. While the report of same is going to be released sometime soon, AllThingsD revealed (after exclusive sharing from HIS) that each unit of Xbox One might cost about $471 to Microsoft Corporation (NASDAQ:MSFT) and includes combined cost of parts and manufacturing for the console, the controller and the Kinect.

The IHS analyst Andrew Rassweiler identified a microprocessor from Advanced Micro Devices, Inc. (NYSE:AMD) to be the biggest cost driver inside the console, with each unit costing around $110. The other major electronic item inside Microsoft Corporation (NASDAQ:MSFT)’s Xbox One was found to be DDR3 memory, a product of SK Hynix, approximated to cost around $60 a unit. The Kinect motion-sensing add-on is estimated to cost around $75 to the console makers and there is no such comparable item in PlayStation 4, justifying the price difference between the two consoles.

PlayStation 4: Cost Comparisons

Sony’s PS 4 is also built with AMD’s microprocessor, costing around $100. The memory comes with higher-end a GDDR5 chip that is estimated to cost around $28 more than the one found in Xbox One. Sony’s PS 4 was estimated to cost around $381 a unit as compared to its retail tag of $399.99 whereas Microsoft Corporation (NASDAQ:MSFT)’s Xbox One is estimated to cost $29 less than its tag of $499.99.

However neither Sony nor Microsoft expects their revenue from direct console sales but from sales of individual games and over a period of time, lower manufacturing costs.

About Chris Bell

Chris Bell is an investing reporter for GDP Insider. Chris covers financial markets and Wall Street, concentrating on developments affecting individual investors and their portfolios. Chris is also over consumer reporter and covers a wide variety of issues ranging from housing to immigration to urban poverty. Chris graduated from the University of Scranton with a degree in Communication and Philosophy. Chris's diligent investigations earned him the honor of being named "Best Reporter" once by the Headliners Foundation of Texas and once by the Houston Press Club.

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