Cost of building an Xbox One

The Teardown Analysis Service division of research and analytics firm IHS reports that the bill of materials (BOM) for the Xbox One comes to US$457 (±R4,600*).

Manufacturing is estimated at $14, which means the Xbox One’s total cost of $471 (±R4,770) is only $28 less than the retail price of $499 (±R5,050), suggesting that Microsoft is subsidizing the cost of the console at the time of launch.

Similar to the costs of the PlayStation 4, with a hardware and manufacturing cost of $381 ($18 lower than its $399 retail price), IHS expects Microsoft will initially take a loss on each Xbox One sold when other expenses are added into the equation.

Steve Mather, senior principal analyst for IHS, said that both Sony and Microsoft can subsidise their losses through sales of game titles. Mather also expects the associated manufacturing costs to come down over time, as is the trend in the electronics industry.

Mather predicts that Microsoft is likely to reduce the price of the Xbox One over time in order to maintain sales momentum.

Microsoft may also be more willing to take a loss on hardware sales with the Xbox One than it has for its previous-generation products, said Mathers:

“The Xbox One is designed to serve as a beachhead in the home for Microsoft, with the console’s capability to interact with—and interface to—other devices, such as televisions, set-top boxes, smartphones and tablets. Gaining such a strategic advantage in the battle to control the connected home and Internet-enabled living room is well worth having the Xbox One act as a loss leader for Microsoft.”

The table below presents the preliminary BOM and manufacturing cost estimate of the Xbox One and the PlayStation 4. Note that these teardown assessments are preliminary in nature, account only for hardware and manufacturing costs, and do not include other expenses such as software, licensing, royalties or additional expenditures.

Xbox One and PS4 costs by subsystem

AMD reigns on next-gen consoles

The Xbox One and the PlayStation 4 have similar core architecture, with an integrated system-on-chip (SOC) supplied by Advanced Micro Devices (AMD) which combines the CPU and GPU into a single device that performs the vast majority of the functions in the console.

Preliminary modelling from IHS suggests that the AMD chip in the Xbox One should cost about 10 percent more than the device it sells to Sony for the PS4. The AMD manufacturing process in the Xbox One costs $110, compared to $100 for the PlayStation 4.

Andrew Rassweiler, senior director, IHS teardown service:

“It’s interesting that AMD has taken over the core central processing unit (CPU) and graphic processing unit (GPU) in both the Xbox One and PlayStation 4. This is a very different landscape from the hardware of just a few years ago, when IBM was dominating the core CPU slot in both the Xbox 360 and PlayStation 3 consoles.

Although the AMD chips are unique in the two consoles, they appear very similar in many ways. Both chips are built in 28-nanometer-process geometry, have the same number of CPU cores, and possess similar silicon die surface area between the two, suggesting similar amounts of functionality and processing power. Even the net power requirements for the two consoles are very much alike, which further underscores functional similarity. The two consoles are not clones, but are definitely related.”

Xbox One
Your Xbox One will arrive pre-assembled.

The cost to Kinect

The biggest factor increasing the hardware cost of the Xbox One compared to the PS4 is Microsoft’s bundling of their Kinect 2.0 system. The Kinect adds $75 to the Xbox One’s BOM and manufacturing cost.

IHS has determined that Microsoft has made significant advancements in the Kinect hardware since the first version of the device examined by the Teardown Analysis Service in 2010.

Since the first Kinect device was introduced in 2010, Microsoft has added new features, including new optics for the system’s two cameras and three infrared optical emitters.

Kinect 2.0 is estimated to be $75, which is more expensive than the older version, which carried a $64 BOM and manufacturing cost. IHS notes they are still examining some of the advanced components in Kinect 2.0.

Xbox One Kinect explosion diagram

Additional Xbox One costs

A major cost driver on the Xbox One compared to the PlayStation 4 is the optical drive. Microsoft uses a Blu-ray drive made by Lite-On, compared to what IHS believes to be an in-house, Sony-made device in the PlayStation 4.

The Lite-On drive accounts for $32 of the Xbox One BOM. The power supply on the Xbox One also represents a $25 cost for the Xbox One.

The table below shows major suppliers and components in the Xbox One.