[quote name='lebowsky']For some reason I don't think that Forbes would just throw numbers out without doing some research. Either way, the $2 Billion you mentioned was from the past two fiscal years, and it was more like 2.4 (1.2B in losses for two years running now).
I honestly don't care about the technology aspects of the article. Microsoft has already changed their tune on the power of the 360 anyway. First they claimed they would have the most technologically advanced machine out there. The PS3 specs get reveiled and now they have changed their tune to say "performance isn't everything, we want the casual and non-gamers this time around."
My point was that Microsoft has deep pockets, but they aren't going to bleed this amount of cash for another console lifecycle. I think Microsoft has already said that it is 360 or bust.[/QUOTE]
That is for the entire division, which has a lot of other things beside Xbox under its aegis. Without the Xbox specific numbers broken out it isn't very useful. By their own admission xbox is the only part of that division that has ever turned a serious profit. For instance, that same division include vast sums spent on developing products for the cable settop industry trying sell them on standardizing on MS software and services. That has been an ongoing monetary sinkhole for them since before the name Xbox was ever uttered in Redmond. (Long before it was a version of Mac OS X, Tiger was the project name for a Video On Demand Server testbed within Microsoft. Never became a commercial product though some of the code did become part of the early Windows Media Server components.) That they had a profitable quarter a while back for the division is remarkable in that the Xbox portion of it is the only one to ever produce any net revenues. A lot of what they do never makes it into commercial products but just tests the latest ideas making the rounds among those plotting the grand convergence that is forever looming. If SCEA were lumped in with some of Sony's money losing businesses, which is to say most of them, it would look pretty bad as well.
Forbes does its share of light and puff pieces. THis is plainly one of them. A serious analysis would break out a lot more of the accounting numbers.
I don't recall them ever saying they would have the technology lead for the whole generation, nor that it was 360 or bust. I've seen writers put words in their mouth with their interpretations but never a direct quote to that effect. The former would be ridiculous since any company with the cash could produce a stronger system at any point a few months after the 360's specs were locked in. The latter is ridiculous because companies rarely care to air such desperation publicly. It would also be plain wrong. If Xbox 360 merely breaks even it would amply justify staying in the business thank to all the other opportunities that presence offers. It that manner it can be a lot like the browser investment. There has never been any money in browsers. (Netscape's business plan was to rule the web server market. The ISP license fees weren't enough to keep the lights on and meet payroll for more than a few months.) But having the browser standard ties into so much else that it is very worthwhile to spend money on it just to give it away.
Microsoft has numerous products that exist solely to extend the reach of their other profitable products and provide a more complete product spread for customers. The more you can keep them buying your brand the better. In a similar fashion many products sold by retailers aren't expected to be worth much in of themselves but serve to let the customers get more of their needs met under that retailer's roof and perhaps see something else they want while they are there. Once they go into the competition's store there is no telling how much revenue might be lost. As such, the Xbox 360 doesn't have to be a major profit center, it just needs to not be a major loss. Microsoft doesn't just have deep pockets, they have a great depth of business and this is why they could get into the console business as companies like Sega were dropping out.
I can write a whole laundry list of mistakes I bleieve Microsoft made in their rush to get the Xbox to market. Only one of them was truly critical: not having Nvidia contractually locked in for die shrinks of the chipset. Every thing else was fixable but not having control of their hardware guaranteed Microsoft could never get the platform close to a break-even status. Correcting the other mistakes was doable but none of that was likely to overcome that one huge handicap.
That is no longer the case. If analysts' estimates are correct, the Xbox 360's subsidy on hardware cost will be only half of what it was for its predecessor. That right there is a huge improvement. The starting subsidy on the original Xbox was estimated to be as high as $150. Reducing the loss of the initial million units at launch by 50% is nothing to sneeze at. It also helps that the launch lineup of games is shaping up to be a good deal stronger than the previous launch and that there will be at least partial compatibility to allow the Xbox library to supplement the software offering to those who weren't previous Xbox owners.
Most critical of all, they own every custom IC in the Xbox 360. ATI could completely collapse and go out of business next year but that would have zero effect on their supply of the VPU or their ability to shop around for reduced production costs on the part. The only major IC they don't own is the memory but GDDR3 is an industry standard with interchangeable parts from many vendors.
Being assured of getting a die shrink to 65 nm (and later 45 nm within the product's likely lifecycle) is the real make or break for whether they were going to do another console generation. The importance of this has grown with each console generation. The SNES and Genesis didn't see any major chip revisions until both machines were no longer the leaders of their brand. (The speed with which Nintendo stopped bothering with the later smaller SNES revision in the major markets raises the question of whether they were already planning the revival of its biggest titles in portable form.) For the 32-bit generation it meant a lot more. The PS1 had the additional cost of a CD drive hindering cost reductions. Getting that chipset revision for the PSone made for well over ten million additional units in the market and helped keep Sega repressed until the PS2 launched.
Now it's gained in importance. When game systems were little more than a chipset and a cartridge slot the gain from a die shrink was pretty simple. It reduced the cost of the chips. There were few secondary improvements. It allowed smaller machines but that had not yet become an issue for most people. The units were fairly small from the start. They were generally well behind the cutting edge on semiconductor technology. Today things are pushing the edge and pushing hard.
Power supplies consume a large portion of the bill of materials than ever before and cooling solutions have become a major cost center as well. When the Xbox 360 CPU gets a 65 nm version it will very quickly offer more savings than cost. The cost before mass production begins could be $50 million but the cost per chip produced would be down by a big chunk, and the reduced power and cooling load will allow for those parts to be reduced quite a lot in their cost as well. (Reducing the size of the console adds some more savings in raw materials but that is minor compared to the PSU and cooling.) The reduction in per unit cost of the console should be at least $50, which means a fairly short time until the cost is recouped if the platform is at all popular and a SRP reduction can be considered. Sony would be looking at similar savings on the PS3 chipset and like Microsoft will be pursuing a die shrink much sooner than in previous platforms.
Microsoft is far, far better positioned to compete without dire losses and even at a profit in the coming generation. This give Sony plenty to worry about as the Japanese market's contribution to global sales has been declining. There is plenty that can go wrong for Microsoft, of course but I wouldn't be surprised at all if the Xbox 360 leaves them with a 50% or better gain in market share over the Xbox.
