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There’s a very good reason the Xbox One costs $100 more than the PS4

Xbox One Teardown BOM

After tearing down both the Xbox One and the PlayStation 4, research firm IHS concluded that the Xbox One costs $90 more to make than the PlayStation 4, at $471 versus $381. The custom processors found in both devices are among the most costly components, as they’re basically combinations of CPUs and GPUs. The Xbox One’s AMD processor costs $110, $10 more than a similar AMD processor in the PS4. Sony’s console has more expensive GDDR5 memory chips inside that cost $88, compared to the Xbox One’s cheaper DDR3 memory that retails for $60.

The Xbox One also comes with a Kinect motion-sensing peripheral, which costs at least $75, while the PS4 doesn’t have an equivalent component. Despite costing $100 million to develop, the Xbox One’s controller only costs around $15 to make.

In addition to manufacturing costs, a portion of the retail price goes to retailers, leaving little, if any, profits to Microsoft or Sony for their new consoles. The Xbox One sells for $499 while the PS4 costs $399, which means that Microsoft would at most make $28 of profit per console while Sony would at most make $18 of profit per console.

In time, manufacturing costs are expected to drop, as console makers will get access to cheaper components. However, that doesn’t mean either Microsoft or Sony will get better console margins, as both companies are known for dropping the price of consoles in the years following their launch.

In a recent note to investors, one analyst said he expects Microsoft to lose more than $1 billion from the Xbox One in the first year, arguing again in favor of an Xbox spin-off for Microsoft.

Chris Smith started writing about gadgets as a hobby, and before he knew it he was sharing his views on tech stuff with readers around the world. Whenever he's not writing about gadgets he miserably fails to stay away from them, although he desperately tries. But that's not necessarily a bad thing.