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Xbox One Likely Being Churned Out at a Loss

Game and subscription sales will ultimately make it profitable


xboxONEMicrosoft (MSFT) is likely selling its next-generation gaming console for less than the device’s total manufacturing costs.

IHS calculates that each Xbox One console contains hardware worth $457 and that MSFT spends another $14 in other assembly costs. While that would seem to leave the company a $28 profit per machine on its $499 retail price tag, analysts say that once research and development costs are factored in, the console sells at a loss, The Register notes.

Microsoft Needs to Spin Off Xbox, Bing
Microsoft Needs to Spin Off Xbox, Bing

That wouldn’t make the Xbox One unusual, however. An IHS official noted that both Microsoft and gaming machine rival Sony (SNE) typically lose money on their consoles during their launch periods, but later recoup their losses through the sale of gaming titles and online subscription fees. Additionally, manufacturing costs normally decreased as production continues, allowing the companies to boost margins or reduce retail prices.

However, Microsoft may be looking to establish a foothold in the wider home entertainment market with the Xbox One, which is designed to function as a media hub as well as gaming platform, possibly positioning the company to launch other media-centered products in the future.

Microsoft says that it sold one million Xbox One units during the first 24 hours after the console launched last week.

Shares of MSFT gained about 1% in Wednesday morning trading.

Article printed from InvestorPlace Media,

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