Microsoft working towards Xbox 360 price cut

An Xbox 360 price cut? Don't hold your breath. Microsoft remains steadfastly committed to its current Xbox 360 pricing strategy, despite a recent drop in the price of the PlayStation 3 .

But a recent interview with Shane Kim, VP of Microsoft Game Studios, suggests that a price drop for the Xbox 360 is certainly pencilled onto the Redmond wall-planner.

Cheaper Xbox 360?

"We need to compete effectively..." Kim told Bloomberg . "And part of that is getting to the mass market price point for the console. We definitely are working on that area.''

How will Microsoft do this? According to the San Jose Mercury News , Microsoft is planning to roll out a revised version of the Xbox 360 as part of a cost-saving initiative codenamed 'Falcon'.

Falcon essentially describes the introduction of new IBM processors and AMD/ATI graphics chips manufactured using a 65 nanometer process.

As a result, the new 65nm chips will be smaller and more efficient than the 90 nanometer electronics used in the current Xbox 360 and Xbox 360 Elite machines.

Crucially, the 65nm chips will also be cheaper to produce. The IBM processor and AMD/ATI GPU are the most expensive components in the Xbox 360. By shrinking the die size of these chips from 90nm to 65nm, more processors can be produced from a single 200mm or 300mm silicon wafer.

Three red lights

Until the cost of the core processing components can be reduced, Microsoft can't realistically reduce the cost of its console. This means that when Microsoft is ready to launch Falcon-based Xbox 360s, it will arguably be ready to drop the price of them.

With 65nm components already in production, a revamped Xbox 360 could be available before the end of the year. We'd put our money on an Xbox 360 'Falcon' console being available before Christmas in the US, allowing the Elite version a clear six month run at retail.

As the recent Xbox 360 Elite launch showed, expect a 2-3 month gap before Europe gets a sniff of any Falcon console.

The other benefit of any 65nm technology revision will be to solve the overheating (or 'three red lights') problems that have been plaguing the Xbox 360 since its launch in 2005. Smaller, cooler-running components should pave the way for a smaller motherboard and better airflow inside the console.

Microsoft has recently acknowledged the problem of overheating Xbox 360s by extending the warranty on all consoles to three years.