Analyst Colin Sebastian of Lazard Capital Markets has reversed his opinion and now claims that the price reduction he predicted for the Xbox 360 just weeks ago will most likely not materialize after all.
Sebastian now says, "Based on the company’s revised unit guidance and stated focus on segment profitability, we now believe that a price cut on Xbox 360 hardware is unlikely in early 2007." But he didn’t exclude the price cut entirely for 2007. "… we would not yet rule out a price reduction or promotional hardware/software bundle before the end of the calendar year depending, in part, on the competitive landscape."
In effect, Sebastian is saying the price reductions will come if either the Wii or PS3 start to increase their respective market shares, or Xbox 360 sales go down. But at the moment, he sees Microsoft’s Xbox 360 as making progress outside of the United States. "North America remains the strongest Xbox 360 market. However Microsoft appears to be making some strides in other geographies, most notably in the U.K, while we believe sales remain weak in Japan."
In spite of the analyst’s overview of the price point of the 360, there were reports last year of a new CPU to be installed in the Xbox 360 sometime in the first quarter of 2007. The chip would be based on 65mn technology, which would make the chip run faster and cooler, in addition to being less expensive to produce.
Kay Ang, Senior Vice President of Operations at Chartered Semiconductor, which is responsible for the manufacturing of the new chip, said in April 2006, "We are excited to expand our manufacturing relationship with Microsoft and leverage the innovative 65nm SOI technology made available to us through our agreement with IBM. By working closely with IBM to enable manufacturing compatibility and dual-sourcing capability, our goal is to continue to be a reliable manufacturing source to Microsoft."
The plans for Microsoft to lower the price of the 360, as Sebastian has stated, will be based upon the "competitive landscape". However, the driving pressure of getting as many 360s into the hands of consumers may be the one factor that convinces Microsoft to finally discount the price of the system, but when this will occur is still unclear.
