Microsoft May Lower Xbox 360 Prices, Revise Hardware

Chief Financial Officer Chris Liddell said on Thursday that Microsoft aims to ship a total of 12 million of its game consoles by June 30, the end of its fiscal year. This is down from a previous 13 to 15 million units target, but some industry observers feel the Redmond, Wash.-based firm is winding down inventories for an upcoming price cut.

"We assume roughly a $100 price cut with the premium unit selling for $299 versus $399 previously," said Rick Sherlund, research analyst for Goldman Sachs.

"With Sony likely delivering enough consoles to meet demand by the June quarter," he explains, "this would seem to be an appropriate time for Microsoft to move down the price curve and benefit from the elasticity of demand."

Also, with Microsoft's smash hit Halo 3 likely to begin shipping in September, Sherlund feels the software giant can still "become profitable in this quarter even with this price reduction."

Microsoft's latest game console made its debut in November 2005, roughly a year ahead of next-generation machines from rivals Sony Corp. and Nintendo Co. Ltd. Since then it has sold over 10 million units, executives said yesterday.

Citigroup's Brent Thill believes that the firm may be lowering its shipments as it makes way for a revision of the game system, which may come this year. Thill believes the new design will be a revised motherboard design, HDMI ports for high-definition video, and 120 GB of storage - 6 times more than its current capacity.

Not all industry experts agree, however.

"A hardware refresh may be in order later this year, but more to cost-reduce the console rather than adding more parts, " commented Paul McNealy of American Technology Research.

Microsoft's Entertainment and Devices division, the group responsible for the Xbox projects, contributed 21 percent towards the software company's $2.68 billion for the quarter.