Arik Hesseldahl

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Microsoft’s Xbox One Costs $90 More to Build Than Sony’s PS4, Teardown Shows

With the recent release of two significant game consoles, research firm IHS has been working a little extra overtime these days. After dissecting 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.

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 Xbox 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, noting that they are built on the same 28-nanometer design technology, and that they 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 that 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 “visible and infrared light,” the maker of which hasn’t yet been identified, Rassweiler said. “We’re a little mystified by that one.”

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 plus sales and marketing costs.

Typically with videogame 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 improve the Xbox One and, if history is any judge, to trim the price incrementally over the next several years.

That’s how it went 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):

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— Kara Swisher and Walt Mossberg, in their farewell D post