What will Microsoft’s recent European Xbox price cut do for its top and bottom lines? Not too much. But does it signal that Microsoft (MSFT) is ready to cut prices elsewhere? And will rival Sony (SNE) have to slash prices on its PS3?
In a note today, Jefferies analyst Katherine Egbert estimates the 80 euro (~$125) Xbox 360 price cut could drive up Microsoft’s June quarter sales by $25 million. But that’s a rounding error for MSFT: Egbert projects the company’s entertainment and devices division will post $1.47 billion in sales during Q2. Meanwhile, she says the price cuts will eat into the division’s bottom line, pushing operating margins into the red after two quarters of operating profit.
With Take-Two’s (TTWO) ‘Grand Theft Auto IV’ finally launching next month, will Microsoft cut prices on the Xbox 360 elsewhere, too? Now that Sony’s PS3 is catching on — and the Xbox is almost 30 months old — Egbert thinks Microsoft will “need to compete more on price” and that the latest European price cuts “may portend other cuts worldwide.”
Would a cheaper Xbox force Sony to slash the price on its PS3? We don’t think so: Now that Sony’s Blu-ray has won the next-gen DVD format war, the PS3’s expensive, built-in Blu-ray player is an attractive feature — not just a novelty.