Microsoft (MSFT) Makes It Official: Cuts Xbox By $100

What had been rumored is now true. Microsoft (MSFT) will cut the price of its Xbox 360 Elite by $100 to $299, the same price as the Sony (SNE) PS3.

Microsoft and Sony are still chasing industry leader Nintendo and its remarkably successful Wii. Industry analysts report that the Xbox has sold 31.4 million units since its launch compared to 23.7 million for the PS3 and 52.6 million for the Wii.

Microsoft continues to get almost no yield from its”devices” unit which is primarily made up of its Xbox operations. For the fiscal year ending June 30, the division brought in only $169 million in operating income on revenue of $7.8 billion. Both numbers were lower than the previous year.

It is hard to fathom what strategic goal Microsoft fulfills by being in the game console business. One theory is that it helps get Microsoft software into residential living rooms and home entertainment systems. That plan has not born fruit. The company’s successes with consumers have been because of its dominance on the PC and growing presence on mobile devices.

The price cut on the Xbox will almost certainly hurt Microsoft’s device margins, even if what Redmond pays for component prices comes down. The price cut may help Microsoft get market share in game consoles, but to what end?

Douglas A. McIntyre