Report: Microsoft Xbox One Costs $471 To Build, $90 More Than Sony PS4

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Xbox One Tear Down

According to the report from research firm IHS, Microsoft’s Xbox One costs $471 to build. Microsoft is now selling the console for $499, which leaves very less margin up front when the console is sold. Microsoft expects to earn more money via selling games and services in the future. In comparison, Sony’s PS4 costs $381 to build and it is being sold for $399 in the market. Microsoft’s inclusion of Kinect sensor which costs $75 is the main reason for Xbox One to cost more than Sony PS4.  

Rick Sherlund, an analyst with Nomura Securities, has estimated that Microsoft is likely to lose as much as $1 billion this year on the Xbox One, after accounting for research and development plus sales and marketing costs.

Typically with videogame systems such as this, the cost of the components does come down, and newer and less-costly components get swapped in over the product’s lifetime. This will give Microsoft the chance to improve the Xbox One and, if history is any judge, to trim the price incrementally over the next several years.

Do you think Microsoft is going in a right way to capture the living rooms of millions of people?

Source: ATD



About Author

Pradeep, a Computer Science & Engineering graduate.

  • Think12

    Well, Microsoft did make a statement earlier that they will make profit right from the first console sold, unlike last gen.

  • Bugbog

    Ya gotta break a few eggs to make an omelette.

  • Rikikrik

    These articles are very misleading, because the costs of producing the Xbox One are calculated on the basis of actual market prices. Microsoft buys these components in bulk (long term contracts), selling tens of millions of Xboxes each year. So Microsoft and Sony also, will demand and command steap price cuts in the order of 35% or more for components. Furthermore, development costs are very low since many components are not newly developed. These factors will bring down the average price for an Xbox to $ 300 or less. It would seem very unlikely if Microsoft would not use it’s huge purchasing power to bring down the prices. Furthermore, Microsoft said that the console would be sold at a profit from the beginning. This implies that even when it is sold at a bargain, that Microsoft will stil make a profit on the Xbox One sale. Let’s also not forget the profit that’s enclosed in Kinect. So these article do not reflect real world prices that Microsoft commands for making the Xbox One.

    • SategB

      No, iHS includes market advantage of quantity discounts when developing the BOM (Bill of Material) estimate so they are very accurate to real cost.

  • SategB

    This is why Elop thinks the devision needs to be sold, it is an expensive hobbie for MSFT, something we can learn from the iFruit; even hobbies should make real money.

    • IAmUnanimousInThat

      As long as they make a profit and keep consistent sales, what’s the problem with having a hobby?

    • Sugadevan

      “elop going to sell xbox,bing” is a stupid made up rumour! please come back to reality.. MS just started to make money from xbox and bing, its brainless to sell those core brands. stop this BS

      • SategB

        MSFT only start to develop positive cash flow on the Xbox franchise as a result of selling a 8 year old unit with aging materials leading to upside on the BOM. While Bing has never delivered a contribution to the upside of the balance sheet. In fact the Whole devision would be a pull downward is it wasn’t for the Android licensing payments to offset the negative pull of those two line items.

        • eharris560

          in the grand scheme what is MS without WP, Xbox, Bing????

          • nohone

            They would be like Oracle and the others – some company that makes software that the general person never uses, nobody cares about known to history as an also ran.

          • SategB

            That may be the case regardless and this way we can release shareholder value rather then letting it disappear to nothing as was the case with Nokia.

            As importantly allows the company to redirect needed resources towards a focused enterprises strategy that can actually aligns the company strengths.

          • nohone

            And see, this is why you are completely wrong on all your “analysis” on the market position of Microsoft. You just want to sell off the company, get money out quick, and let it fold if that is best for investors at this moment in time. You want what is best for the day trader, I want what is best for the long term investor – of which I am one.

          • SategB

            Just the opposite, I want to assure the company’s long term success and future relevancy. This will be best by allowing the great dedicated employees to stop wasting resources on non profitable venture and refocus on what the company does best.
            For I believe in these people and know that with good leadership they can once again make MSFT the leader it was. It becouse I am a optimist who has faith and trust people rather then being a fearful misanthrope.

          • nohone

            There is no growth in continuing to do what you have done fore 30+ years. Let’s suppose they cut everything except for Windows, Office, and Server. They will have no growth since these are growing only incrementally. Software like Windows will lose value to non-enterprise users since services such as MSN will be gone – and yes, MSN is a valuable site, it is ranked #23 in the US and #30 in the world of all web sites. Products like Xbox make younger people want to use Microsoft products, which drive adoption of other products.
            Look at Apple. iPod made them money, but even Steve Jobs himself said that for years iTunes lost them money, but it was what made the iPod useful.
            So cutting off anything that does not make you money, and cutting off anything that does make you money but does not fall into the enterprise is not always a good idea, unless you want to remain stagnant.

          • SategB

            Thank you for making my point so well. For the duration of the Ballmer years MSFT has been as you described “stagnant” from trying to be all things to all people, hanging on to contributing area hoping it would next year. You are correct it is time to stop doing the same thing, let go of the stagnation of thought, have faith in the great men of women of MSFT.

          • akaBeene

            Example: Please take a look at when Windows development started (1983) and when it really started bring in the big bucks (1995). Microsoft has never been about making a billion dollar product/service during its first release. They keep at it and build markets and better products.

          • eharris560

            A leader in what exactly? You and the people that call for the sale of Bing and Xbox fail to see just how much tech world has change. Apple has made this a mobile computing era, and with Google help is also all about the ecosystem. So without Bing, and Xbox what does Microsoft have to offer? How are they going market their PCs, tablet, and phones. I guess they should sale those off too.

          • SategB

            Now you are staring to understand. Microsoft has failed at trying to out Apple, failed at out Googleing Google, the only thing it has been good at is being Microsoft. They need some who understand that in this new era you will not succeed trying to be all things to all people you succeed by being focus on your strengths, for microsoft that is Enterprise.

          • eharris560

            Enterprise is a small pound compared to the customers market and pounds have the intendancy to dry up. So basically you’re saying MS should concentrate on servers and office. MS would be dead in 7 years. You think MS stocks prices are low now. Let them try that HP stunt. Their stocks would drop to $10 are lower.

          • nohone

            Exactly. And don’t forget Dell. Dell decided to focus on the Enterprise with the consumer market being “a hobby.” It got so bad for them Michael Dell bought the company and took it private.

          • SategB

            A even more profitable and successful company the last 10 years.

        • Zicoz

          Even though Bing has been a money sink selling it is a very bad idea from a technology standpoint. Going forward, Bing is going to feed into just about everything they’re doing. “Bing as a platform” and their “knowledge database” is going will make both Windows and Windows Phone stronger in the competition with Google and Apples products.

    • nohone

      If they cost $471, and sell them for $499, there is $28 Microsoft gets for each one. Yes, there is some R&D costs, and other costs that are not factored into this. But when they will sell 100M X1s, then it will be a wash. Over time, the price for the components will go down before MS drops the price, meaning higher price per console. But what they really make money from is games and online. $10/game from 3rd party games, $20/game from in house made games. Then the money made from LIVE. The 360 had the highest number of games/console sold.
      Without any real losses per console sold, money flowing in from games and online, they should be doing quite well with the Xbox this generation.

      • SategB

        You are correct that there is a small positive contribution when comparing SRP and BOM but it is a rookie novice error not to remember SG&A needs to be covered. In the industry we are looking at 15% but like higher for the amount of M&A perform for the product or roughly another $75 to get get alignment,

    • skruis

      Selling it would be a bit shortsighted. It may not be a money machine BUT it gives Microsoft a lot of positive exposure, access to consumer information, consumer subscriptions, etc. It’s a pretty crucial item on a checklist if you’re trying to be taken seriously in the consumer market. It’s not THE item on the list but it’s an important one and there’s plenty of additional benefits that come from having something like Xbox as a core part of your “package” of services that aren’t immediately recognizable in the financials.

      • SategB

        Neither of this items has made any significant contribution in five years, most comes from Windows and Office products and some from Enterprise product growth. These items are not “core” to anything that contributes what give value

        • skruis

          Microsoft is pushing into the consumer space and for that, it is ‘core’ to their plans.

          • SategB

            That is just it; it is a plan developed from a fail premise that will distort shareholder value and in the long term, not to mention the company. The negative weight of the downward pressure on the legacy revenue streams does not give the company the 5-10 years to see ROI and then all bet are off.

          • skruis

            Once again, you’re shortsighted. Its not all about stock value and shareholders. Those factors do not always reflect the health of the company. Anyone basing their decisions solely on stock value and the share holder desires is limiting themselves to the possibilities of perception. Massive change in an organization the size of Microsoft is always disruptive and should be executed at a measured pace. You’re judging the plan while its being executed without fully realizing the results that have yet to be produced. You might be right in the end but blustering about this and that before the results are in is a bit … idiotic.

          • SategB

            No what I am pushing for is all about the long term health. As Ray Ozzie pointed out to us in his memo and now Elop agrees with Ray and me the company has missed to many of these market trends and now needs to presue a finer more focus core otherwise not only will the non contributing liabilties need to be remove but marginal contributers will be axed. Then what will be left is shell of what once was.

          • skruis

            We have different opinions on what will allow Microsoft to be healthy in the long term. The exposure and positive influence from consumer lines like Bing, Xbox, Windows Phone will naturally bring continued trust from the home back into the enterprise.

  • Duk3togo

    This is not new! Video game companies always have lost money per console to make it up later with licensing and 1st party games. Now also with the inclusion of services, that includes apps, Bing, Xbox live, etc.

  • skruis

    Yup, I think they are. My UVerse cable box is connected through it right now. I had some concerns about the device and the Kinect (I calibrated it incorrectly … it was a severely obvious mistake on my part), but after learning some of the commands, it flows really nicely. I was worried that my wife would have issues watching TV but it actually turned out better than I thought: I say “xbox on” and it turns the cable box, tv and the receiver on. The obvious stuff like “Xbox Watch AMC” works pretty well but it’s just as easy to use the cable remote. Originally, I had this incorrect mindset that I had to use the One to issue the channel switch commands but nope, that’s not the case…again, another obvious mistake. Although, it would be nice if Microsoft released a new TV remote like they had for the 360. Cause you say “Xbox Watch AMC” and you see the cable box typing in the channel number as the Kinect blasts the IR commands. It’d be nice to simply tap the numbers if Kinect gets flaky and you dont want to use the guide which of course you still can use the cable box remote but it’s not aware of the xbox one UI…not that thats really an issue if you’re simply watching TV through the One. Even without that though, it’s still pretty easy to use. And when you want to game or answer a Skype call, there’s no switching HDMI inputs on the TV or the Receiver, you simply say “Xbox Play Call of Duty Ghosts” or use the controller to switch right over. It’s pretty slick. Since Bluray is built in, the cable box is plugged into it and I watch most of my media through Netflix or Prime, I don’t have to switch inputs on the receiver and tv anymore and that is really convenient. The One owns HDMI 1 on my TV.

  • tropolite

    I’m glad someone has focussed in on the Kinect being the extra value and therefore extra pricing between XBoxOne and PS4. Now that that’s done… moving on.
    Selling Xbox and Bing IMHO would be a mistake. Yep they aren’t the big money spinners but they are GREAT marketing – in peoples homes, in front of them when searching, and making up the ecosystem of ‘Windows’. Selling Xbox there wouldn’t be the tight integration that we’re moving toward. There are situations in business where you have ‘bread and butter’ services that keep the company in profit, and you have services that are value added for customers that may cost a bit for the company but pays off in customer return and loyalty.
    MS’s change in business strategy is a good thing and probably should’ve been implemented a few years ago. Exciting times for the industry as a whole.

  • wp77

    What a pile of baloney. MS is not selling the console for $499, the retail store is, which means they are paying $350 to $400 max wholesale. Seeing that IHS has priced bluray drives higher than Newegg when MS is buying millions of them shows how bogus these numbers are!

  • jasonbxx

    Seems that Microsoft Xbox One wins bigtime. Even Xbox 360 beat PS4 by a wide margin.

    http://blog.infoscout.co/black-friday-console-war/