Topic: Gamecube console, profit from day one?

[StRaNgE]

i have read over and over that the cube has made money from the sale of the console from day one while ps2 and x-box both took or are still taking some serious losses on their consoles.

although i have seen this on the old forums numorous times i have yet to see any facts  showng the cubes construction cost and it's intake.

does anyone here know  what those figures are and can it be backed up?
thanx

[RickPowers]

While I can't give you exact information (Nintendo doesn't release those figures), GameCube is the first console that Nintendo lost money on at launch.  However, that loss per console was in the SINGLE DIGITS, and they had reached break-even by March of that year.  All of Nintendo's other consoles made money at launch, usually also in the single digits.

Both Sony and Microsoft lost significant money on their consoles at their respective launches, and while Sony should be making money on PS2 at this point, Microsoft is still losing significant money on each and every Xbox sold.

[Sith]

On the original PGC forums, many people stated that the Gamecube cost $100 to make, hence they made $50 every console sale.

I'm guessing those figures are incorrect after hearing what you said.

[StRaNgE]

yes, gotta be honest . i was not expecting you to say that rick after so many said the 100 dollar thing. Although even 1 dollar is netter then a negitive amount the rumors of it being a 50 take home on each consol  ran rapid in the last forum.

does anyone else  know about this as well?

[MikeHrusecky]

What Rick said is true. The Cube didn't cost $100 to make off the bat, that's a more recent development due to moving manufacturing to a Chinese (?) subcontractor, or something like that; I don't remember all the details. I'm not entirely sure if the "under $100" production is online yet, but it might be.

[ink]

Well the price-per-cube is a function of how many they sell and make.  If Nintendo just made one Cube, it would have been a multi-million dollar expense; but as they make more and more, the design and manufacturing costs come down as well.  I doubt even the game companies even know the total cost of their hardware at any given moment; although they probably have a per-machine figure for any given assembly run.  The overall business must make money, and that is the goal.  Both Nintendo and Sony are doing this.  Microsoft isn't (yet).

[RickPowers]

Exactly, Mike.  What I said has no bearing on Nintendo's cost per unit at this time.  While I sincerely doubt that the "$100 per unit" that people on the other forum were quoting is entirely accurate, considering how quickly Nintendo makes manufacturing changes, it's probably in the ballpark.

Sony is also making money at this point, thought not very much.  There are some costs associated with the PS2 that are fixed, such as licensing the USB and Firewire ports, the Optical output, the DVD drive, etc.  This is where Nintendo was smart ... staying away from "industry standards" allows Nintendo to avoid the licensing costs associated with using those technologies.

Microsoft is still losing money, and it's largely because of the fight with Nvidia over the cost of the chips, plus the fact that the Xbox is basically built with "off the shelf" parts.  Theoretically, the cost of the Xbox should be able to come down pretty quick once they move to the rumored smaller size unit.

[Christberg]

Don't forget the fixed cost of that 10gb harddrive either, Rick.  There's really not much that can be done to produce that part of the unit cheaper.  In theory, with a die shrink or better manufacturing you can make any chip eventually cost pretty much nothing, but with an HD, the price to build it never really drops because the costs associated are the drive motor, cleanroom, and disc.  Unfortunately, not much can be done to make those cheaper.

The Xbox will probably still be losing money when 2005 rolls around if they keep dropping the price like that.

The smaller form factor WILL certainly help though.

[Resemvla_Syria]

I guess this really shows Microsoft inexperiance in this industry , and its a good way to see if they have learn for the next generation.  

[Mingesium]

Here is stuff that I read that keeps GameCube cost down:

Nintendo is planning on manufacturing GameCubes in China.

Nintendo is letting FIC make the boards

Nintendo gave IBM a billion dollars for the Gekko. I think thats a fixed cost. So if Nintendo hits their 50 million mark, the Gekko would have cost them $20 each.

Also, I think that Nintendo has struck a deal with ATI. I know that ATI has received some of Nintendo's software money.

[RickPowers]

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Don't forget the fixed cost of that 10gb harddrive either, Rick. There's really not much that can be done to produce that part of the unit cheaper. In theory, with a die shrink or better manufacturing you can make any chip eventually cost pretty much nothing, but with an HD, the price to build it never really drops because the costs associated are the drive motor, cleanroom, and disc. Unfortunately, not much can be done to make those cheaper.

Uh, Microsoft doesn't MAKE the 10GB hard drives.  They BUY them, so they pay whatever the cost is when they buy the lot.  So it's not a fixed cost.

[ink]

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Uh, Microsoft doesn't MAKE the 10GB hard drives.  They BUY them, so they pay whatever the cost is when they buy the lot.  So it's not a fixed cost.

Ummm, yeah, but who do you think pays the price for all that?

Microsoft.

[manunited4eva22]

The cost for an ATA33 6-8GB HDD (I personally have never heard of one that did store 10GB) is so low right now it is pretty much a null cost. Buying them at face value they are worth no more than 14 dollars a unit in bulk, and that cost does drop as they become further outdated. Example: I have a 1/2GB monster HDD that cost more than 1 grand when it was bought. I'm sure it dropped to a very low cost to build at some point, but it almost never drops to the actual cost to build. Microsoft still has a while before they have to worry that they are driving the 2 HDD manufacturers into the ground by demanding lower costs.

[Mingesium]

they don't make hard drives that small anymore. Microsoft actually buys like 20GB hard drives and partitions them.

[Christberg]

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Originally posted by: RickPowers

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Don't forget the fixed cost of that 10gb harddrive either, Rick. There's really not much that can be done to produce that part of the unit cheaper. In theory, with a die shrink or better manufacturing you can make any chip eventually cost pretty much nothing, but with an HD, the price to build it never really drops because the costs associated are the drive motor, cleanroom, and disc. Unfortunately, not much can be done to make those cheaper.

Uh, Microsoft doesn't MAKE the 10GB hard drives.  They BUY them, so they pay whatever the cost is when they buy the lot.  So it's not a fixed cost.

The production cost for the unit never really changes though.  The only thing that can effectively be made cheaper is the labor, and that only goes so far.  People can underbid each other for the HD cost (it's just a friggin IDE drive) but that's not going to go very far either.  Don't see how it can drop in price all THAT much.

[Ian Sane]

"I guess this really shows Microsoft inexperiance in this industry , and its a good way to see if they have learn for the next generation."

Well Microsoft has never really planned on making a profit with the Xbox so it doesn't really have anything to do with inexperience.  The Xbox is more or less being used to get a foothold in the console market so that future Microsoft consoles can make a profit.

[Christberg]

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Originally posted by: manunited4eva22
The cost for an ATA33 6-8GB HDD (I personally have never heard of one that did store 10GB) is so low right now it is pretty much a null cost. Buying them at face value they are worth no more than 14 dollars a unit in bulk, and that cost does drop as they become further outdated. Example: I have a 1/2GB monster HDD that cost more than 1 grand when it was bought. I'm sure it dropped to a very low cost to build at some point, but it almost never drops to the actual cost to build. Microsoft still has a while before they have to worry that they are driving the 2 HDD manufacturers into the ground by demanding lower costs.

That's different, because it's just surplus that's hanging out in their warehouse.  They sell those at a loss.  The actual raw materials to produce a hard drive outside of the chipset and the drive motor haven't changed at all really since the very first IDE drive.  They use the same exact platters, same cases (you'd be surprised what molded steel costs) and the drive motor hasn't really dropped in cost either.

[RickPowers]

Christberg, you have no idea what you're talking about.  Hard Drive prices drop almost DAILY.  Manufacturing gets cheaper and cheaper, and like I said, Microsoft isn't the one that MAKES the drives, so the actual manufacturing cost is irrelevant.  All that matters is what Microsoft PAYS for them.

[Christberg]

OK, you tell me how the raw materials cost of a hard drive can drop.  The most expensive components are the platters, the HD casing, the head, and the drive motor that spins the platters.  

[RickPowers]

Again, Microsoft isn't paying for the cost of the materials or the labor, they're simply paying what the vendor is charging, and there is no rule anywhere that says that the vendor has to charge over their costs.  To Microsoft, the hard drive is just a PART.  You're WAY overanalyzing the situation.

But, to answer your question ...

The cost of the raw materials drops just like anything else in a free-market economy; Hard Drive makers don't make every last thing in the drive, they buy parts from suppliers just like anyone else.  Labor goes down as the Hard Drive makers replace humans with machines, the cost of the clean rooms and equipment is amortized over the cost of each manufacturing run, and technological advancements reduce costs across the board.

None of that is even close to relevant in the Microsoft situation, though, since 8GB hard drives aren't made anymore, and 10GB drives (what Microsoft switched to) are quickly being phased out too.  When that happens, the price will drop even further as the hard drive suppliers clears out obsolete inventory.

Seriously, you might want to rethink acting like you have an MBA around here.  You'll get eaten alive.  

[Christberg]

Yeah, you pretty much nailed it there.

Still, the cost of molded steel is the same it's been for ages.  HDs aren't like a microprocessor where you can just shrink the size of it by half and then manufacture them in the same size wafers, effectively dropping the cost directly relative to the size of the chip.

Not that I have one of those (going to scholl for cosci at the moment) but it's certainly a vested interest of mine.

[RickPowers]

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Still, the cost of molded steel is the same it's been for ages.

Prove it.  Technological advancements in steel production occur just like in any other industry, perhaps not as fast as in high tech, but steel is no where near as expensive now as it was, say 50 years ago.  Unless you can back up your statements, I suggest you let this go ... because if I have to dig up the figures to prove my point, I'm going to be very angry.

And you wouldn't like me when I'm angry.  

[Sith]

RockPowers, my dad sells computer parts for a living, and I work along side him once in a while. In my entire time there, I hardly see Hard Drive prices drop or increase. I do not know how you can say the 10GB Hard Drive price drops DAILY, when my dad sells it at the same amount weekly.

[BlkPaladin]

Even if you Dad sells them that isn't the end all of the story. You seem the have a narrow view of the market. The prices of everything fluxuate daily. In markets such as Computer Technology the manufactures buy their raw product by the lowest bidder. So the cost to them fluxuats but there is always a down trend in techonolgy cost because of new technology, new manufacturing costs, cheeper labor (The reason so much technology is assembled in Asia because the work force works for peanuts.), then they have a fixed medium price that they sell it to the manufactures the mark up on it is enough to cover the manufacturing with a target area profit. The Middle man gets the techonology at bulk prices were they sell it to retailers, etc for another marked up price, that has a downward progression as time goes on. The reason why price stay at a certin is that retailer orginal only make a marginal profit off the newer techonologies so it sells. But as the supply cost goes done they try to keep it at a certin market up to wring all the profit out of it.

But in a free market there will always be someone who undercuts you and if they start taking a good part of your business you have to cut the price or be put out of business. They same principles effect all the levels of supply, so prices go down. And technology has another driving factor that brings it down faster as newer technology comes out the older techonolgy has to get cheeper or it won't sell. But there is so much you mark something down before it not worth making. So as new technology get stacked in generations on top of old techonology it forces the price down, and as soon as something gets to the point it not profitable to make any more its phased out.

There are a ton of other factors that effect price like supply and demand. But I won't go into them. I was majoring in Business in college but only had two year before I was injured and had to drop out. But Rick is correct when he say things drop "daily" if that helps. Retailers don't drop prices with the market because they want to get the most money out of it. But we are NOT talking about retailers here. We are talking slowly about the manufacturing process and that is quite different than what you are talking about.

Sorry about the confusing language, I'm working on 4 hours of sleep. And I have been up for over 15 hours. I start sounding rather funny.

[Resemvla_Syria]

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Well Microsoft has never really planned on making a profit with the Xbox so it doesn't really have anything to do with inexperience. The Xbox is more or less being used to get a foothold in the console market so that future Microsoft consoles can make a profit.

That may be true that Microsoft didn't planned to make a profit but almost anybody can assure you that in designing the xbox they were trying to be as cost effective as possible, and thats the point that if MS was more experience they would have though of this phase of the xbox's lifespan. Like somebody mention that Nintendo started modifying the cube almost from the get go, and thats the difference from the experience.

by the way I'm new here but long time reader of the PGC forums and this is my second post in a games forum since like 1998.