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Xbox 360 retail price could be higher than expected

'Strong initial demand'

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Forbes.com logo Goldman Sachs maintained an "outperform" rating on Microsoft (nasdaq: MSFT - news - people) after meeting senior management late Tuesday.

"Microsoft observed that the upcoming Sony (nyse: SNE - news - people) PS3 appears to be a powerful box similar to Xbox 360, but believes that [it] will have an important time-to-market advantage with a head start on next-generation content, which takes time to fully leverage the capabilities of the console."

Goldman Sachs expects the Home and Entertainment division of Microsoft to break even at the end of fiscal 2007. The research outfit said that this "will depend on competitive pricing by Sony, but we feel this is probably about right, resulting in the elimination of about a 5% drag on overall Microsoft earnings."

Goldman Sachs expects Microsoft will move approximately 3 million Xbox 360 units in the December quarter, "with demand exceeding supply". Goldman noted that the console could be sold at a retail price that is more than it had expected.

"With the worldwide availability in the December quarter, likely strong initial demand, and the added cost of the hard drive [estimated at $30], we might see a higher initial price."

Meanwhile, there is speculation that the Xbox 360 could be compatible with the iPod from Apple Computer (nasdaq: AAPL - news - people)

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