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Internal 360 Blu-ray would sell at a loss

by on03 April 2008


360 rumor mill is in overdrive with speculation

We reported about a month ago that Microsoft was looking into either doing a Blu-ray add-on drive to replace its discontinued HD DVD drive, or perhaps replacing the standard DVD ROM drive with a Blu-ray drive. It seems that despite all of the denials from Microsoft, the rumor mill is in overdrive with speculation that a deal for drives as been struck with Lite-On as supplier of BD ROM drives.

Although Microsoft has gone to great lengths to again today state that no deal for a Blu-ray drive has been struck for the Xbox 360, it is obvious that this information continues to gain steam, so we suspect that Microsoft is following the path that they previously announced, which is to provide support for the side that won the format war.

We do know that Microsoft is still looking at die shrinks as a possible solution to provide a cost reduction in the overall cost to produce the Xbox 360. It has been suggested that they will launch a new revision of the Xbox 360 that will incorporate a variety of measures to reduce the overall cost of the system. The problem is that if they were to add an internal Blu-ray drive to the Xbox 360, they could not achieve a price point that would be an overall reduction in cost to the platform. In fact, with BD ROM drives hovering at the $90 to $100 mark, it would lead to Microsoft selling the unit at a loss if the current pricing structure were to stay in place. It would be hard to see how Microsoft could get more money for the Xbox 360 just by adding an internal Blu-ray drive.

Our take is that Microsoft can continue to deny it all they want, but the rumors will continue. Embracing the rumors, however, has the potential to hurt sales in the short term, while some may just wait for the new version of the console to be released. We think that it is likely that they may elect to produce an external unit first, as the risk would be less and it would not leave current 360 owners out.

While the new version of the console with the latest die shrinks and cost reductions will be released, we think that if Microsoft were to add the internal Blu-ray drive, it might only be on the high-end model to remain competitive with the PlayStation 3; the lower-end models may continue to include the standard DVD ROM drive so that Microsoft can realize the cost reduction savings until the price of the Blu-ray drives fall to a level where it would make sense to offer it in all versions of the Xbox 360.

The time line as to when we will see an announcement from Microsoft is not known, but we believe right now that it will be at some point prior to the start of the second half of 2008, but before the fall selling season for sure. Microsoft needs to have a strategy in place to compete with the PlayStation 3 this holiday season, and we think the evidence suggests that it will include Blu-ray in some form for the Xbox 360.

Last modified on 03 April 2008
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