"hardest piece of consumer electronics hardware to produce in the world"

Oh crap, here comes the new Sony.

How much were their cumulative losses up to now?

They always said that they would be in this business for the long run. MS is probably one of the only companies in the world to produce a product for a loss for like 6 years straight to finally get a profit.

I hope they throw a party.

@Skeep: I wonder if he just meant for Microsoft, who are much more of a software company than a hardware manufacturer. Still, odd choice of words.

Now the question is, how long until they recoup their investment? Will they even put a dent in it before they have to go deep into the red again for their next console?

-Leshrac
http://alinktothefuture.com

...Meanwhile at the "we finally turned a profit party"

Major Nelson hands Peter Moore a cookie.
Peter Moore..."WOOH we finally made a profit"
..gets a call from his accountant
Peter Moore..."We spent all our profit throwing this party??"
Peter Moore..."Well there's always the 720"

So I guess iSuppli was wrong that MS was making $75 on each 360 sold.

@leshrac55: I'm not even sure they'll ever break even if they go through with that rumored portable device. (Which, just might break that rumor for now.) Honestly though, I think they'll buckle down and do whatever they can, be it restructuring, advertising, price reduction, to get that unit profitable.

That way, they can say, "See? Now we've proven our model, we've made it to the black, we're one of the big boys." Then, go to making their next console. And/or try their hand in the portable gaming/media market.

Xbox 360s will be profitable this year sometime? Is that confirmation that the 65 nm chip is definitely hitting this year?

Also, Profit is step 3

leshrac55- It will be quite some time. They will only recoup the investment over Nintendo'c cash bloated profit driven corpse.

Even Sony stands in their way at this point.

More telling to me is the fact that he mentioned that NEXT year they will be breaking even on hardware costs. That really supprised me. I was under the assumption that they ALREADY were breaking even or even making a small profit. That one statement negates that idea.

It means that MS is in far worse shape than the fanboys give it credit for.

"hardest piece of consumer electronics hardware to produce in the world"
What about it is exactly so hard to manfacture?

With 360 approaching two years old it only seems logical that the hardware will be reduced significantly which is good for them. The only time Microsoft Games division was in the black was when Halo 2 released then it went back to red.

grandmastersexay- From the report I saw from iSuppli it appeared the estimated manufacturing cost was $75 below the retail price of the system. They sell to retailers at somewhat less than this, the exact amount of which can very. It also doesn't include extra costs such as shipping, advertising, workers' wages, making good on warranties with broken systems, R&D for new developements such as the elite, and probably some other things as well.

Also, I believe I heard, that similar to the PS3, the cheaper SKU is produced at a greater loss for Microsoft, and the estimate was based on the premium.

With all this, it's not surprising at all that they could still be turning a loss.

What about it is exactly so hard to manfacture?

The hype. Ba-dump-pshhh.

"What about it is exactly so hard to manfacture?"

I'd say it is pretty hard to make one that won't 3ROD right out of the box. I can't IMAGINE what their factory failure rate is if so many bail out in consumer's hands.

"hardest piece of consumer electronics hardware to produce in the world"

OHhhhhhhh so thats why they are paperweighting all over the place and mine has started to make a loud wanging noise when the disc drive spins up. Not because they are build like crap but because they are just so dang hard to make.

One has to wonder if the title of that link wasn't supposed to have the comma one word to the right? Am I the only one who read it that way at first?

techguy- MS' most recent quarterly report, posted right here on Kotaku, confirmed that they were losing money on that division. I'm pretty sure everyone else knew about it. On the other hand, the company as a whole reported excellent profits, so I doubt they're in as much trouble as you seem to think.

If this design is so hard to make, why did they decide on it in the first place? Couldn't they just as easily designed something that was easier to manufacture, even if it wasn't quite as powerful as the current 360? Is this difficulty in manufacturing the reason MS is not dropping the prices of the 360 and adding "high end/Elite" models to the top?

(I thought Sony already had the market covered in terms of "expensive, large, black console anyway)

@adbmice: whoops, "just as easily have designed"

@TomHayden: it usually goes
example:
download it
run it
???
Profit

@grandmastersexay: Do you feel like factoring in replacements?

@TomHayden: Sillender's right. Step 3 is the great unknown.

LOL they are a software company designing a console... Software companies don't design chips or the tech that makes them run. For the first time MS realized they could do what they wanted and they simply pissed their wizzed with delight. They they realize hell we want this cheap cuz um we have to make a profit and we know that sony is making the god chip the cell. So I say things got pretty hard for them and their rough times are finally over almost.

I have to give them credit they over came the IT industry and the Apple warlords and actually got people to like their box and hell I've been real close to getting one too.

You see no matter how bad SONY does there is always away to come back as no one hated any company more than how much EVERY one hated MS...LOL

My hat is off to you sir gates!
And good luck to KAz with that PS thing. This also confirms Allard did know what he was doing when the dreamcast tanked...LOL The guy is a corparate ninja I tell you he shinobi-ed sega for MS...LOL

LOL man posting with no edit button is hillarious... They wizzed their pants... yeah that what I meant and I'm not going to say it again!

I think it's hard because of the drm that have to embed in every piece of hardware and software and get them all to recognize only themselves. Any slight change in processing causes problems.

The next, next gen, will consist of modular devices. The 360 and to a lesser extent, the PS3 has proven that the concept of a core system with expansion by the user, is a valid and lucrative model.

As a result of this. I don't expect the next next gen will require quite so much of a financial investment. The core system, with some kind of basic networking and storage for the downloaded games and movies will be all that is needed. I think by then we will have also seen the decline of the highstreet games store. Companies like Game and EB have yet to form any kind of strategy to survive the download age. They may become purely hardware sellers over time.

It might be a good PR excuse for the failure rate, but who's going to buy the 360 is harder to produce than the PS3? CELL and Blu-Ray in one device are much more complex to bring to market. I still say it's 'harder' to make over 50" LCDs if you want to bitch about manufacturing difficulties. There is a reason they're so expensive. Got to love execs. Maybe the Elite is 4-D now as well. =)

We need to make a version for Microsoft.

@Mongoosekun:

Nothing is harder to produce than the cell or the PS3... Yeah like intel and AMD has 16 core chips falling all over the place. The only thing hard about the cell was the die shrink and then the blueray diodes are no longer hard to make now that they actualy read the manual for the production machines...LOL Yeah Kenn forgot to give it to them and didn't find it till here stared cleen out his office for that nameco collaboration thing...LOL

penhalion-
I happen to support Sony but, I can't agree with you that
"the PS3 has proven that the concept of a core system with expansion by the user, is a valid and lucrative model."

It's not proven. Both Sony and Nintendo have made large sums of money an modular hardware that is very closed.

If Sony starts making money on the PS3 then at least 1 case will prove it can work. Until then we can only wonder if the open hardware gamble will help Sony or hurt it.

MS plans on making a mint on accesories that are 360 specific. Sony won't get that piece of your wallet.

As for game stores the PS3 has alread had an effect on this. As consoles become home entertainment devices game stores will morph into entertainment stores or die. My local game stop had 15 PS3's they could not sell while the Best Buy next door couldn't keep them in stock, with 3 shipments a week. I bought mine at best buy for blueray movies. It may be a trend.

"Yeah, we talked about profit, and we decided it was more of a 'when we get around to it' kind of thing."

Just for clarification :

"Next Year" is Fiscal Year 2008 which start on July 1st.

Bach is saying that within two months they'll move to profitability.

So by next year, MS will have made $5 billion in losses back?

Profit means you've made more money than you've spent. Unless MS plans to clear $5 billion plus $1 after expenses on the Xbox next year, this division is not going to be profitable.

It will take *years* of sustained and continuous positive cash flow for MS to turn a profit on the Xbox 360. At this point, it's unlikely that's going to happen.

@Runna: One typo is preferable to wretched composition skills.

And Perspex, that was very clever.

Lol, really, its about time

@ Techguy1138 /Penhalion

Guys, you are missing a huge issue with modular systems: GAME REQUIREMENTS

Kotaku just had an article about issues with GTA4 on the 360 because the developer had no guaranteed hard drive. If you make other components modular, then other games will have to suffer limitations based on "reaching the widest possible audience".. which will mean that those modules end up doing -jack-.

Same as with a PC, you can have the nicest 64x Dual Core etc..etc.. but if you're running a 32 bit, single-threaded game still (as most are).. well.. it's just wasted, since the developers develop for the biggest installed based. Modular systems = toned down games.

Personally, I hope Microsoft does revoke it's policy of no HDD required games... but I also don't like what it implies about the business policies... though this would pale in comparison to some other recent stuff.

I've never seen so much MS hate on a Kotaku comments section. It gives me the warm fuzzies...

It looks like Microsoft took the Sony strategy and pushed it to new heights. Lose money in the first 2 or 3 years, make it all back in spades later... Unfortunately, MS released Xbox 2 after only 3.5 years, destroying that well reasoned strategy.

It's a wonder Xbox fans aren't more upset with Microsoft than Sony at this point for taking THAT route...

I see the future, bungie releases halo3, buying spree continues on through the holidays, microsoft wins money.

What about the 360 makes it so hard to produce? Should Mr. Bach have said it's the hardest to produce at the volume that they need to produce them at? Even that I wouldn't understand. It's probably the hardest production he's ever personally dealt with.

By that standard, my life is the hardest ever lived by any human, ever.

The most difficult part of the design had to be getting all the heat out of that small box. Why not just use a bigger box that could accommodate a proper, quiet heat-sink-and-fan combo? Because the larger box wouldn't satisfy the Japanese market?

Watch out for the Xbox 360 Elite Quiet Edition (featuring a larger case... er...more XSpace), available Q2 2008.

@adbmice: Thank you for readin now move along...LOL It's a blog I don't even proof read these things most of the time...LOL And why do people keep calling this site a news site...LOL It's a blog and a really kick ass one!

PS thanks for caring but if you want me to write legibly then post a comment to me or further the convo-

If KO care so much about grammer then they would put in a edit tag for our post...

Price drop before 11-07.

I guess this means no price drop.
That also explains why the Elite is so unnecessarily expensive.

lol didn't they claim the same thing last year?