Wednesday, November 27, 2013

Not that profitable: Xbox One costs Microsoft $471 to build; MSRP is $499

Now that the Xbox One has followed the PS4 to retail, IHS iSuppli has followed up things, itself, with an Xbox One teardown that AllThingsD got an early look at, on Tuesday.

Remember that Microsoft's Xbox One sells for $100 more than the PS4, but includes the Kinect. Most of that additional cost is eaten up by BOM cost, as IHS said that the Xbox One costs Microsoft $90 more to make than Sony's BOM cost for the PS4.

The console, including the Kinect and the controller, costs $471 to build. Microsoft therefore makes about $28 per console. Meanwhile, the PS4's earlier teardown showed that it costs Sony $381 to build the console with an MSRP of $399. Microsoft makes a whole $10 more per unit than Sony does; both companies reported sales of one million or more units in the first 24 hours of retail availability.

As with the PS4, the Xbox One has an AMD-built processor. In both cases, the processors combine CPU and GPU functionality, and the consoles' single most expensive part. Microsoft's chip has an estimated cost of $110, which is approximately $10 more than the PS4's AMD chip.

Andrew Rassweiler, the IHS analyst who led the Xbox One teardown team (as he did for the PS4), said the rival processors, both of which use the same 28-nanometer design technology, are "both very powerful chips," adding:
You might call them a gaming console on a chip.
As with the PS4, memory is another high cost item in the Xbox One. However, unlike the PS4, which used higher-end GDDR5 memory chips, the Xbox One uses DDR3 memory. The RAM comes from SK Hynix, and added about $60 to the Xbox One's BOM cost, which is about $28 less than the PS4 RAM cost.

The Kinect unit -- Sony doesn't bundle its similar Move unit in with the gaming console -- adds $75 to the Xbox One's cost, while the controller adds about $15.

Like the PS4, this is the first-generation of the Xbox One, and we expect that Microsoft will release several revisions to the system's hardware as components change and prices drop. We'd also expect that -- rather than taking extra profit -- Microsoft (and Sony) will trim the price of their consoles to keep gamers interested.

As with prior consoles, both Sony and Microsoft are less interested in console profit than in profit in other areas, such as games and services. This is much the same way that printer manufacturers focus on consumables rather than printers, themselves.

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