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Xbox 360 price cut makes sense, says Pachter

Wedbush Morgan analyst thinks we shouldn't be surprised if rumours of an impending price-cut are accurate

Responding to recent rumours of an impending Xbox 360 price cut prior to E3, Wedbush Morgan Securities analyst Michael Pachter says that, realistically, it makes a lot of sense.

"Microsoft has historically been a price taker - meaning that they typically wait for Sony to cut first," Pachter told

"However, they haven't been in the position of having a cost advantage before, as they do now."

Pachter said that Sony's revelation that they lost USD 1 billion on PS3 last year suggests that they are still pricing around USD 100 below cost. Chairman Stringer's promise that they won't lose money this year makes a price cut for the PS3 all the more difficult.

"Putting Microsoft's cost advantage together with Sony's reticence to lose more money, it's easy to conclude that you will see Microsoft reverse course and be a price leader."

Pachter acknowledged that there are other factors at play - primarily the fact that the PS3 is outselling the 360 in Europe by a lot and in the US by a little. With the launch of Metal Gear Solid 4 helping Sony on the software side, Microsoft may feel it is time to differentiate the consoles based upon the price.

He noted that when the systems were priced at USD 200 apart, the Xbox 360 outsold the PS3 2 to 1. When the price gap narrowed, the systems pulled even.

Narrowing sales, exclusive PS3 content and the Blu-Ray victory over HD may be enough to push Microsoft into a cut now.

Pachter thinks it is hard to envision the core model priced below USD 249, nor the Elite below USD 349, but with the cheap cost of hard drives it is conceivable that the Elite may soon become the "standard" 360 SKU at USD 299 - allowing Microsoft to release a new SKU with an even larger hard drive.

Can Sony afford not to respond?

"Sony will have to respond if they see 360 sales increase significantly - say to over 300,000 a month in the US," Pachter said.

"I believe that every 360 sold is one less potential PS3 sold - and vice versa - and expect Sony to behave rationally."

Sony's response may not necessarily be a price drop, however, but could initially take the form of a bundle. Not only would a bundle be less of a loss for Sony, but it wouldn't make the company Chairman look as bad.

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