What usually happens before a console price drop is they start shrinking the components so they produce less heat and are cheaper to manufacture. Most current consoles have followed this path, and from the way it looks, so will Microsoft… eventually. The XBox 360 processor was set to undergo a size reduction from 90nm to 65nm die size, which will make the console cheaper to produce, but it has been delayed until later in 2007.
Microsoft originally signed a contract with Chartered Semiconductor Manufacturing to produce the smaller chip, but those plans have changed and the process has been pushed back to mid-2007 instead. Microsoft Taiwan declined to comment on the slip. In all reality, if Microsoft wanted to drop the price of the 360, they could. It’s not like they’re making a profit per console and the XBox division has never made a profit. No matter, really – the 360 isn’t really due for a price cut for a few months yet anyway, just in time for the PS3 European release.