May 15th, 2002 (12:00am) - Microsoft Corp. said on Wednesday it was slashing the price of its Xbox (news - web sites) game console by a third in the United States and Canada and by 29 percent in Japan as a price war between console makers heats up.
The discount, which Reuters reported earlier on Wednesday, had been expected. It is the latest salvo in a price war between console makers jostling for share in the $20 billion global video game market.
In a related cost-saving move, Microsoft said it will shift Xbox production to Doumen, China, near Hong Kong, from Hungary by July or August. It will maintain a facility in Guadalajara, Mexico.
The Xbox price cut, to $199 from $299 in the United States immediately and to 24,800 yen ($193.12) from 34,800 yen ($271) in Japan effective May 22, comes two days after Sony Corp (news - web sites). said it would cut the U.S. price of its market-leading PlayStation 2 (news - web sites), which came out a year before Xbox, to $199.
Sony also said this week it would allow retailers to begin discounting in Japan.
Microsoft said it has been planning its own price cut for weeks and that major retailers would have promotional displays up this weekend reflecting the new discount. The Canadian price will also be cut, to C$299, the company said.
The Xbox was launched last November in a marketing blitz but international sales have faltered for Microsoft, which has been prepared to lose money on console sales in order to make it back in game software by building a big base of users.
Microsoft announced a deep price cut for the Xbox in Europe last month, a discount the company said had revived demand for the green-and-black machines.
MOVE EXPECTED
The latest price cuts were scheduled to be unveiled next week, but Microsoft is believed to have advanced news of the discounts to eliminate any price advantage Sony might have had.
Analysts have estimated that at the initial retail price of $299, Microsoft has been losing anywhere between $76 and $105 on every Xbox sold.
Both the Sony and Microsoft news come a week ahead of the game industry’s Electronic Entertainment Expo in Los Angeles. The show, more commonly known as E3, is the industry’s biggest event of the year and the most high-profile venue for such announcements.
Analysts have become more certain in recent weeks that Microsoft would need to cut the price of the Xbox, in part to boost to its user base in the United States and in part to keep parity after deep price cuts in Europe and Australia.
Those cuts -- close to 40 percent in some markets -- came only six weeks after the consoles launched, as Microsoft conceded the initial high prices had crippled sales.
In part because of those weak European sales, and in part because of the sluggish sales Microsoft said it is experiencing in Japan, the company recently lowered its fiscal-year unit sales forecast for the console by as much as 40 percent.
The two price cuts this week mean that all three major consoles are now priced at $199 in the U.S, the largest gaming market. Nintendo (news - web sites) Co. Ltd.’s GameCube came out in the United States at $199 last November.
Analysts now expect Nintendo, which had positioned itself as the low-cost competitor, to cut the price of its GameCube machine to maintain its hold on the market for children’s games.
