Market research firm iSuppli has taken a look at Microsoft's Xbox 360 console and found that the materials inside the Xbox 360 console cost Microsoft $470 before assembly.
The console is sold at $399, meaning a loss of $71 per unit. But there are also other items packaged with the console like the PSU, cables and controllers which add another $55 to Microsoft's cost, meaning a loss of $126 per unit. These estimates include assumptions that Microsoft is getting a discount on many components.
That was the case with the first Xbox console, which contained about $323 worth of parts and materials when released, but sold at retail for $299. It's certainly not going to help Microsoft reverse the trend of losses in its home-entertainment segment. In the fiscal year ended June 30, that unit lost $391 million on sales just shy of $3.25 billion. That's a little more than 8% of Microsoft's total sales of $39.8 billion.
A Microsoft spokeswoman said that the company's plan calls for a "gross margin neutral" strategy through 2006, meaning that between the sales of consoles, game software, and accessories, it expects to essentially break even. Profits should follow in 2007.