"Microsoft is losing money on the consoles, but seeding the market, researchers say.

Xbox 360Despite assurances from Microsoft executives that the retail price of the new Xbox 360 game console would cover production costs, product tear downs by two different market researchers suggest that the company is losing money on the machines.

Xbox Dissected

On Thursday, researcher Portelligent conducted a tear-down analysis of the standard Xbox 360, which retails for $299.99, and estimated its actual material costs at around $310, suggesting a slight loss on every machine sold.

Microsoft clearly tried to reduce costs as much as possible, the Austin, Texas based researcher said. In particular, Microsoft tried to trim its Xbox budget by using multiple suppliers for different parts on the machines. For example, the devices that support the wireless link for the Xbox 360's wireless game controllers were supplied by at least two different chip makers, National Semiconductor and Marvell Semiconductor, the firm said.

The cost of making the Xbox 360 Premium edition run far higher than its retail price of $399.99, according to researcher iSuppli. That company's analysis of the cost of parts inside the game console resulted in an estimate of $525, far above the retail price.

The loss on the machines may not be swallowed wholly by Microsoft. Some of the parts suppliers may take a hit as well. And Microsoft could argue that it will make up a small loss on the hardware through game sales. But, if the teardowns are correct, it's clearly not what the world's largest software maker had intended for the Xbox 360. In an interview earlier this year, an executive said the consoles would be profit generators." [more]