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Microsoft pledges to cut Xbox costs
Not the same as lower prices
As it stands, Microsoft makes a significant loss - thought to be over $150 - on each Xbox console it sells, and the Home and Entertainment Division of the company, which houses the Xbox project, regularly turns in large quarterly losses as a result.
Ballmer said (in that lengthy internal email this week where he also cited IBM and Linux as Microsoft's top challenges) the company will reduce the cost of goods sold to manage costs and increase growth without employee layoffs. Significant steps have already been made in slashing Xbox production costs, including moving manufacturing to China from Hungary, and replacing some components with cheaper alternatives.
Several news sites this morning appear to have picked up a rather strange spin on the statement - postulating that by "reducing the cost of goods sold", Ballmer was actually hinting at an Xbox price drop, or even a price drop for Xbox software. However, it's fairly clear from the statement that Microsoft is keen to reduce the cost base of the Xbox project, rather than making further aggressive market moves which would increase its losses on the system. Further price cuts seem unlikely in the near future.