Microsoft are not known to stand idly by while they lose money. As far as XBox is concerned they seem to be doing the same. Plans for XBox 2 are well under way, with a reported release of the re-vamped XBox in September, 2002. What are those plans? The reduction of hardware prices.
Apparently Microsoft have already managed to squeeze their DVD suppliers to a 30 percent reduction and are now pressuring Intel and nVidia, their processor and graphics suppliers. Those two companies will be harder to convince however, since both seem to be complaining about XBox sales so far. Intel even went as far as to say in its most recent financial report that the Pentium IIIs it is supplying to Microsoft show "flat growth".
Microsoft are so focused on price cuts though, that they are willing to change suppliers if they don't get their way. The success of their competitors and their dwindling XBox sales are a serious incentive to bargain hard. With recent XBox sales estimates from Microsoft dropping from 6 million units to 4 million, it is obvious that something has to be done. It is refreshing however, to see that MS are willing to do what they claimed they would i.e. stick with it in the console market and stay for the duration.