Why is Microsoft dropping the Xbox 360 price so fast?

The Xbox 360 is on track to have 2 million sales in the UK by next week, according to industry number crunchers at Chart-Track, as Microsoft continues its Baked Beans strategy of slashing the price in quick succession.

Microsoft’s 360 strategy has become more than apparent since the most basic model, the Arcade rejig of the old basic package, is being sold for less than the Nintendo Wii ; one of the main selling points of which had been its low cost for mass appeal.

Microsoft announced a series of price cuts in the run up to Easter, putting the cheapest 360 models RRP to £199.99, with the top-end Elite model going for £259.99, and the move seems to have paid off with an increase in sales – 40 percent in the first week after the price cut was announced, though this naturally tapered off the following week, only to increase again over Easter.

The strategy puts the Xbox 360 firmly in the mass-appeal end of the market. Where once Microsoft had touted the console as a next-gen, extremely premium product with plenty of high-end nifty features, from the hard drive and graphics through to the online play ; now the console is battling in under the £200 wire, a price-point that traditionally sees a console break open new swathes of the market.

The PlayStation 2 had a renaissance in sales when it sneaked in under the barrier, and it is an ongoing example that low-low prices still shift a lot of hardware – the now extremely low-priced PS2 was one of the surprise strongest sellers over the Easter period, having already put in a strong performance over Christmas.

The 360, despite having been launched in 2005, has seen the likes of the PlayStation 3 – a year old on the UK market in March – catch up quite quickly. The PS3 reached the 1 million milestone in February, in less time than the PS2, which took 50 weeks to sell 1 million units. The Xbox 360 in contrast took 60 weeks to sell 1 million units, and is only now reaching the 2 million mark whilst the momentum of the PS3 is propelling it to catch up quite quickly.

The ace in Microsoft’s deck used to be that it brought the 360, which we must remember is only the second generation console from Microsoft taking on the previously completely undisputed champion, to market a good while before Sony ; cannibalising market share by sheer virtue of being on the market. Now that the PS3 is proving quite successful in its first year (though still not as successful as Sony would like), Microsoft is slashing the price of the 360 aggressively.

This will, Microsoft hopes, not without some merit, give the 360 some more momentum, opening the console to new consumers with a lower pain threshold than previous price points invokes, convincing them that the 360 is the far better option to the PS3. The effort is also aimed at cutting into Nintendo in a way the console had not been able to previously, through a two-pronged price and marketing effort.

It is no mistake that the lowest-end model of the 360 has been rebranded the “Arcade” edition, invoking family friendly visions to compete with the established Wii reputation as a console for all. Price and the perception of a mass family friendly appeal will sell more consoles than all the hardcore, high-end credentials in the world ; a position that Microsoft and others can thank Nintendo for creating in the past few years between the DS, Wii and a host of cute, intelligent, and different games.

So, Microsoft will hit 2 million Xbox 360’s in the next week. It has, with the introduction of the high-priced PS3 and low-priced Wii into its once lonely position as the next-gen console on the market, decided to go the route of tapping into the vast fields of low-price, mass-appeal consumers ; rather than try to play an expensive game with Sony, where the marketing battle to attract just one high-end gamer costs a lot more than it does to slash the price of a unit by £50 and make soothing noises at the masses willing to pay £200, but not £210, for their console.

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65 Nm GPUs For Xbox 360 Now In Production, Xbox '540' Coming In 2009

Taipei (Taiwan) - News about refreshed Xbox 360 consoles are trickling, which is about time given the fact that the console will celebrate its third birthday later this year. The Taiwan Economic News is reporting that first wafers with 65 nm GPUs are leaving the production lines, joining the 65 nm Xenon CPU. Rumors about a Blu-ray Xbox 360 remain alive and we are hearing first information about a possible mid-cycle refresh for the console, which will include the ’Valhalla’ SoC.

It has been almost a year since Chartered has begun taking the Xbox 360 Xenon CPU from 90 nm to 65 nm and it really was just a matter of time until other hardware would follow. According to the Taiwan Economic News, TSMC has initiated first wafer starts of the 65 nm Xenos GPU and Northbridge. Microsoft apparently has ordered 10,000 300 mm wafers from TSMC at this time.

As it is the case with any die-shrink, Microsoft should see substantial economic advantages from this move, supporting the company’s ongoing strategy to reduce the production cost of the console (the reduction of the Xbox 360 production cost has been one of the key reasons why Microsoft’s entertainment division has been able to notably increase its profits over the past seven quarters). If the 65 nm Xenos "v2" scales down linearly from 90 nm, the new die size should be around 125 mm2, while the eDRAM chip will remain at 70 mm2. The new production process should yield about 35% more GPUs per wafer than before.

TSMC will continue to be in charge of the wafers, while Nanya will be delivering the flip-chip packaging substrates. ASE combines the silicon and substrate and is responsible for QA.

Quite honestly, we were a bit surprised to hear that Microsoft did not decide to die-shrink both the CPU and GPU at the same time, especially because two different foundries are manufacturing the chips. However, our sources at TSMC explained that Microsoft has the same production philosophy as Nvidia : Wait for a manufacturing process to mature and then run the initial wafer order. Apparently, the transition was simulated in detail by ATI and the tapeout happened without problems, at least according to our sources close to ATI. Keep in mind that ATI is only a contracted partner for Microsoft : Both the CPU and GPU are officially Microsoft parts, and the Ballmer-Gates company is the only one in the console segment following through with such a strategy.

The Xbox 360 is scheduled to ship in an "all 65 nm" package (Jasper platform) this August. Consumers won’t notice the refresh, unless Microsoft decides to put a Blu-ray drive into the Xbox 360. We were not able to receive a confirmation either way, and we keep digging to find out if the Asustek subsidiary Pegatron will manufacture regular Xbox 360’s or units with an integrated Blu-ray drive. In any case, Celestica, Pegatron and Wistron will have a busy summer cranking out millions of refreshed Xbox 360 consoles.

A more dramatic and perhaps visible change will happen next year : TSMC plans to begin producing the Valhalla chip, which will be the foundation of the mid-cycle refresh of the Xbox 360, thus called ’Xbox 2.5’ or simply ’Xbox 540’ (360+180), in fall of 2009. We learned that this new chip is apparently much more than a die-shrink and end up as a system-on-a-chip design. This change is likely to enable to redesign the Xbox 360 casing and go towards a slim-design, much like what Sony did with the Gen1 and Gen2 PS2. We believe that TSMC will use a 45 nm process for this Multi-Chip-Module package (CPU+GPU+eDRAM).

There are also some interesting pieces of information that Microsoft is shopping for a more efficient cooling solution - efficient in more ways than just one : Several people close to the cooling industry told us that Microsoft approached them and asked for better and cheaper cooling than what is used in the Xbox 360 right now. Some may claim that the current Xbox 360 cooler design is already as cheap as it gets, but we have no doubts that Microsoft will find a way to drop the cost once again.

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Microsoft Revises Memory Placement in Latest Xbox 360 Hardware

While Sony’s hardware revisions for its PlayStation 3 console appear to almost always be in the interest of cutting costs, Microsoft’s changes to the Xbox 360 seem to be aimed at both cost and improving reliability.

The fresh-to-market new Xbox 360 “Go Pro” package now with a 60 GB hard drive may appear only to be the old model with 40 additional GB, but under the hood is a minor but deliberate change that could improve heat dissipation.

As discovered in the blog of Ben Heck, the latest Xbox 360 motherboards rolling off the line from a June 20 production does not feature memory chips that are mounted to the underside of the motherboard. Instead, it appears that the memory capacity of the chips that do share the same side as the CPU and GPU have simply been doubled.

This change not only saves Microsoft on production costs from having to place chips on the backside, but also cuts down on heat emanating from a place with no active cooling.

Aside from the change in memory configuration, the rest of the motherboard is unchanged. The layout is the same as the “Falcon” boards from the latter half of 2007, which swapped out the 90nm CPU for a shrunken 65nm chip.

The next major revision in the Xbox 360 hardware is codenamed Jasper, which will see the GPU move to the 65nm process sometime this fall. Most believe the heat generated by GPU is the root cause for most Xbox 360’s that fall to the “Red Ring of Death,” so while the incremental improvements may have improved reliability, it’s the arrival of Jasper that most are anxiously awaiting.

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