The Xbox Series X's high-end specs promise a high price tab. But one analyst thinks Microsoft could take a serious hit on manufacturing costs in an effort to undercut Sony at the start of the new generation. The move isn't very likely, however.
The Xbox Series X is a beastly system with premium components befit of an enthusiast PC. It features a 12TFLOP Navi 2X GPU, a 3.8GHz 8-core 16-thread Zen 2 CPU, 16GB of GDDR6 RAM, and a PCIe 4.0 SSD. That kind of powerful hardware comes with a steep price for consumers, but big companies are able to reduce costs due to mass quantities. Even still, they have to price out their consoles accordingly, but a cheaper price tag could conquer next-gen. So who will take the bigger hit and make their system cheaper?
Wedbush Securities analyst Michael Pachter says Microsoft can afford to take the hit. And honestly, he's right. Microsoft made $30 billion in one quarter alone, and Xbox is less than 10% of total earnings. If Microsoft wanted, they could sell the Xbox Series X for $400. But it doesn't mean they will.
"From what I've seen, Sony will have to charge $500 for the PlayStation 5, but Microsoft has a big balance sheet. If they want to cut the price by $100 and price below and subsidize the first 10 million units, they will," Pachter said in a recent Periscope live stream with Geoff Keighley (around the 10:40 mark).
"I think Microsoft is waiting to have Sony blink first and then they'll reveal the price and the launch date. Very likely sometime in November, very likely $400 and fans are going to get a lot for their $400."
Microsoft could do it if they wanted to. But the real question is: Why would they want to?
The reality is Xbox is a small part of Microsoft's earnings. It's functioning well right now because of services, which makes the real money. Hardware is an entry point to services, and companies typically take a hit on hardware as-is. If Microsoft sold the Xbox Series X at $400, they'd be taking an even bigger hit on a segment that routinely makes less than 10% of their revenues.
It's not likely to happen.
Furthermore, Bloomberg estimates that the PCIe 4.0 SSD and GDDR6 RAM alone make up $250 of each system's total manufacturing costs, which are expected to be around $450 per console. So Microsoft would be losing $50 on every Xbox Series X if they sold it for $400.
If Microsoft took this kind of a loss on, say, 5 million consoles at launch, they'd have lost $250 million. That's not the endgoal with Xbox. The main goal with Xbox is to make money, not lose it, and make it in a way that's accretive and synergistic with services and hardware.
No, the Xbox Series X won't be that much cheaper than the PlayStation 5, especially since it's actually more powerful than Sony's next-gen console.
The Xbox Series X is due out Holiday 2020 and will likely cost $500 (or maybe even more).
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