Bloomberg is reporting that Microsoft (MSFT) may make a huge cut in the price of the Xbox. The company "needs to lower Xbox’s $299 to $479 price to increase sales and lure customers who aren’t interested in traditional combat and racing video games, said Shane Kim, vice president of Microsoft Game Studios."

The cut would put the price of the Xbox at about what the Nintendo Wii goes for, and the Xbox arguably has many more features.

The price cut could also offset any concerns about Xbox hardware problems. Microsoft has recently taken a $1 billion hit to extend warranties due to faulty machines.

But, the world’s largest software company loses money on the Xbox. Bloomberg writes that "in fiscal 2006, the games unit lost $1.26 billion on sales of $4.26 billion."

That may put the burden of making money onto Xbox Live, the companies internet-based multi-game playing function. The income from this product could run $500 million a year.

A price cut may get Microsoft market share, but it could drive the gaming division deeper into the red, at least for now.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

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