With two significant game console releases recently, research firm IHS has been working a little extra overtime these days. After doing surgery on Sony’s Playstation 4, the team gave Microsoft’s Xbox One the same treatment this week to get a peek at its electronic innards in order to estimate what it costs to make.
And the verdict from a report that IHS will release later today was shared exclusively with AllThingsD: The combined cost of parts and manufacturing everything that comes with the Xbox One — the console, the Kinect and the controller — comes out to $471, or about $90 more than the cost of Sony’s PS4, which debuted last week.
The Xbox One sells at retail for $499, giving Microsoft little, if any, room for much of a profit for now.
At least $75 of that cost is derived from the Kinect motion-sensing add-on that comes bundled with the console. (The PS4 has nothing comparable in its box.) But the biggest cost driver inside the console, said Andrew Rassweiler, the IHS analyst who led the teardown team, is the microprocessor from chipmaker Advanced Micro Devices. Like a similar AMD-made chip found inside the PS4, this one is a combination of a CPU and a graphics processing unit (GPU) that handles gaming graphics. At an estimated cost of $110 — about $10 more than the AMD chip found in the PS4 — it’s the single most expensive component in the system.
“They’re both very powerful chips,” Rassweiler said, built on the same 28-nanometer design technology. And both essentially provide all of the computing power of the console. “You might call them a gaming console on a chip,” he said.
The other major silicon inside the Xbox One (shown in an exploded view above) is the memory. Unlike the PS4, which used higher-end GDDR5 memory chips, the Xbox One contains older — more common and less costly — DDR3 memory. Memory chips came from SK Hynix and added about $60 to the cost, or about $28 less than what’s found in the PS4.
The parts used to assemble the console itself — not including the Kinect, the controller or anything else — cost $332, Rassweiler estimated, meaning the other items add about $139 to the cost. The controller costs about $15 and contains Wi-Fi and Bluetooth components from Marvell Technology.
The Kinect includes chips from Samsung and STMicroelectronics, which supplied an image processing chip. There’s also a chip that emits infrared light, the maker of which hasn’t yet been identified, he said. “We’re a little mystified by that one,” Rassweiler said.
The external power supply costs about $25, and other box contents, including the headset, cost about $10. It costs about $14 to assemble.
One big supplier was Texas Instruments, which had six parts in the Xbox One: Four in the main console and two more inside the Kinect. All six are dedicated to managing power. ON Semiconductor supplied four power-management components.
Since retailers like Best Buy and Walmart have to take their cut of the retail price, Microsoft’s hope for eventual profits lies in sales of individual games and the reduction of manufacturing costs over time.
Rick Sherlund, an analyst with Nomura Securities, has estimated that Microsoft is likely to lose as much as $1 billion this year on the Xbox One, after accounting for research and development and sales and marketing costs.
Typically with video game systems such as this, the cost of the components does come down, and newer and less costly components get swapped in over the product’s lifetime. This will give Microsoft the chance to both improve the Xbox One, and if history is any judge, trim the price incrementally over the next several years.
That’s the way it happened with prior versions of both the Xbox and the Playstation, Rassweiler said. “Microsoft could eventually eke out a break-even scenario,” he said. “But they’d probably use it as an opportunity to cut the retail price, in hopes of selling more,” he said.
With that, here’s an exploded view of the Kinect. (Both images were taken by IHS.)