Microsoft Seeing Red With Xbox 360

In order to be first, sometimes you have to pay the price. That's what Microsoft could be doing with its Xbox 360, according to analyst firm iSuppli.

While the firm's teardown of the unit gave a peek into the dominance that IBM will have in the next-generation of gaming consoles, it also showed that the bill-of-materials cost for the Xbox 360 Premium reaches $525 USD, 32 percent higher than the $399 USD retail price of the device.

It should be noted that iSuppli's findings do not include the projected cost of manufacturing each unit, so the total cost to Microsoft likely runs even higher.

According to preliminary findings by iSuppli, the custom-built triple-core PowerPC chip from IBM accounts for 20 percent of the materials cost at a price of $106 USD. In fact, the chip and integrated silicon alone account for $340 USD of the total bill-of-materials cost.

However, the most expensive single part in the new Xbox 360 console is the ATI GPU with embedded NEC DRAM, which cost Microsoft an estimated $141 USD.

But why is Microsoft taking such a big hit on the Xbox 360? More often than not, console makers will take losses on the devices, hoping to make up the difference through software and licensing fees. The lower price also allows for faster adoption of the console.

According to Andrew Rassweiler, manager of iSuppli's Teardown Analysis Service, Microsoft should see at least $50 of savings per unit plus other cost savings as yields improve on the parts within the Xbox 360, such as the CPU and GPU.

No matter what the price, in the next generation of gaming consoles there is one clear winner: IBM. Its chips will power the Nintendo Revolution, Sony's PlayStation 3 and the Xbox 360.

"While it's too early to say whether Microsoft's Xbox 360 will prevail in the gaming market, IBM is a sure winner in consoles due to its across-the-board design wins," the firm said.