Microsoft taking $126 hit per Xbox 360

<i> BusinessWeek</i> commissions study, which says the software giant is paying a premium on next-gen hardware.

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When Microsoft got into the console game in 2001, much was made of the fact that it lost an estimated $125 per console on each Xbox. Four years later, that per-console-hit has tallied to $4 billion of red ink for the Redmond, Washington-based software colossus, whose current-fiscal-year forecast calls for $44.5 billion in revenue.

However, Microsoft seemed all too happy to fork out billions to become the number-two console maker in the world. The approximate 22 million Xboxes it has sold surpasses Nintendo's to-date sales of over 16 million GameCubes--but still lags far behind the 90-million-plus Sony PlayStation 2s in homes worldwide.

Now, it appears that history is repeating itself. According to a study commissioned by BusinessWeek, Microsoft is again losing around $125 per hard-drive-equipped unit of its brand-spanking-new console, the Xbox 360. To perform the study, tech researcher iSuppli took apart an Xbox 360 and examined the cost of all its components. It concluded that the hardware of each unit cost $470 disassembled. That means Microsoft loses $71 before each HDD-equipped 360 console goes to the factory, right around the $76-per-unit loss analysts predicted for the core Xbox 360, which has no hard drive, back in June. (Those same analysts also predicted shortages of the console, which then was believed to come in only one model.)

However, when iSuppli said the HDD-equipped 360 console cost $470, that's exactly when they meant--just the console itself. They didn't include the cost of the wireless controller, headset, Ethernet cable, universal media remote, combination high-definition component/standard A/V cable, and bricklike power supply that come in the box of the $399 Xbox 360 "Premium Pack." Factor those in, and Microsoft's per-unit-loss on each Premium pack comes to $126--just above the per-unit loss of the original Xbox--before one penny (or, more likely, yuan) is spent on labor.

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