MSFT revenues fall short, Xbox 360 supply woes to blame [Update 1]

by Vladimir Cole { Jan 27th 2006 at 11:45AM }

In the three-month period ending December 31, 2005, Microsoft earned revenue of $11.84 billion (a tad short of analyst consensus expectations), a record for the company, despite weaker-than-expected sales of the Xbox 360 console due to supply constraints that translated into gamers going home without Xbox 360s during the holiday season. Investor reaction to Microsoft's results have been positive this morning. The company's shares are up nearly 4% on trading, and the overall market has been buoyed by the results as well.

The big story in this quarter's earnings were the Xbox 360 effects, which Investors Business Daily summarized best:

"Microsoft reported disappointing sales for the December quarter Thursday, blaming a failure to make enough Xbox 360 video game consoles to meet demand. But unearned revenue from customers signing long-term software contracts beat expectations, which cheered investors."

So what was the story with the Xbox 360? The slide above (courtesy Microsoft) summarizes Xbox 360 performance:

1.5 million consoles sold (.9M in America; .5M in Europe, and .1M in Japan)
More than four games were sold per Xbox 360 console
More than three accessories were sold per Xbox 360 console
Over 50% of Xbox 360 consumers are connected to Xbox Live

[Update 1: Corrected headline. The word "earnings" was incorrectly used instead of "revenues." The two are quite different. We apologize for the nubcake malapropism.]

Reader Comments (Page 1 of 1)

Jo @ Jan 27th 2006 11:54AM

Well, abysmal sales so far, but this isn't the real test. Clearly they'd sell more if there more on the shelves (although just this week I've seen them at both a Toys R Us and a Walmart).

So we won't really know until a few more months have past.

duerra @ Jan 27th 2006 12:09PM

Uhhh... there's no way on earth that more than 4 games were SOLD per XBox 360 sold. Maybe there were more than 4 games *pressed* and distributed to retailers, but not sold to the end consumer. Not a chance.

Kevout @ Jan 27th 2006 12:09PM

0.1M for Japan is quite a high estimate wouldn't you say :)))))

LunarDuality @ Jan 27th 2006 12:14PM

The bullet points of most interest here are a software attach rate of 4 per console and an accessories attach rate of 3 per console. We all know *that* is where the money is to be made and therefore MS has a good thing going right now. And once Celestica ramps up to maximum output, MS will be able to finally quench the worldwide demand. (At least until some BIG 2nd-gen games come out in late March.)

m3mnoch @ Jan 27th 2006 12:22PM

i really don't understand the whole 'abysmal' part. they only sold 1.4 million original xboxes. so, during a 7 day shorter time frame, they sold 100,000 more units.

why is that abysmal again?

i'll tell you what is abysmal -- not selling that many in one territory. that's just plain irritating. you'd think that if they had 3 times the territories to support, they'd have 3 times the manufacturing plants up and running.

i wonder if the celestica contract was just initiated late (after they decided they'd not have enough for simultaneous launches) or if the plant was just dragging its feet through regulations and red tape. just plain late due to a poorly managed relationship.

i bet celestica was dragging their feet getting prepped for manufacturing. that would explain why they went from 'simultaneous launch' to 'staggered by a few weeks launch.'

yeah. that makes sense.

m3mnoch.

m3mnoch @ Jan 27th 2006 12:27PM

and, how is a 4+ attach rate for games not believable?

were you not witness to the arm-barring game sales retailers acomplished with their 'value bundling?' did you maybe miss that?

m3mnoch.

Fuzz @ Jan 27th 2006 12:32PM

The reason their is such a high game attach rate is because retailers were force feeding packages to consumers. Remember all those "bundles"? Ya, its not born from a consumer desire to have 4 games right away, it was because they were forced to, if they wanted to get an Xbox 360.

Fist Of Konshu @ Jan 27th 2006 12:32PM

I love the 0.1m sold in Japan. LOL!!!

LMAO @ Jan 27th 2006 12:36PM

duerra, yes there is a way on earth where 4 games were sold per xbox360. And that is called a Bundle.

Sense @ Jan 27th 2006 12:52PM

I agree that the attach rate is high. Still m3mnoch is right about the bundling. 2 per console used to be an impressive attach rate.

I suspect that from now on you will start to see numbers between 3 and 5 on account of bundling and an increase in online ordering (online stores rarely offer consoles un-bundled.) I'm sure the attach rate will be just as high for PS3 and Rev. Maybe slightly lower for PS3 if it costs $500+ US.

mirobin @ Jan 27th 2006 1:02PM

To the person(s) disparaging my assumptions/estimates derrived from the 600k NA sales estimate a week or two ago, I extend my middle finger and say "I told you so." :p

(60/40 US/EU distribution, 100k sales in japan)

Gombard @ Jan 27th 2006 1:03PM

I bought 3 games on day one (was one of the lucky ones who preordered, with no package deals). So im certain it could be as high as they are saying.

pr0cs @ Jan 27th 2006 1:03PM

4 games per attach rate is probably pretty accurate. Of myself and 2 other friends that managed to land a 360.
I bought Cod, kameo
My neighbor bought kameo, cod2, tiger woods, pgr3, kong
My coworker bought Amped3, cod2, kameo, pgr3

small sampling but not everyone though the release titled sucked.

Art Guy @ Jan 27th 2006 1:20PM

I bought 4 games as well. PGR3, COD2, Quake4 and Kameo.

Isurus @ Jan 27th 2006 1:25PM

I definitely believe a 4+ attach rate for games. The 60+ people on my friends list all seem to have 4 or more purchased games. This 4+ attach rate also most likely does NOT include Arcade games. If that were the case, it would be even higher. I know that I have purchased 4 games since launch along with 7 Arcade games and I have less games than just about anyone I know. This launch wasn't as bad as some people would make it out to be.

Cyberclaws @ Jan 27th 2006 1:46PM

I believe the 4+ attach rate as well. I'm not the richest person in the world by any means but I still scored the Premi Package and have Madden '06, Kameo, PDZ, PGR3, COD2 and now DOA4. And I had 4 at launch and got PDZ at Xmas and DOA4 on release.

I wish I had the link to this other guy who claimed in another joystiq post that our 360's are nothing but another 'Dreamcast'. Oh well. I guess he's into pain I guess...

aegies @ Jan 27th 2006 1:53PM

historically, microsoft has had a much higher than usual attach rate for the xbox. for some reason, xbox owners seem more willing to spend money on their console, both during purchase and during the lifespan of the console, than the other systems; how many people do you know that own 4-6 controllers for their ps2? and even with the gamecube, it never really exceeds 4 (although i know quite a few gc owners with kongas).. think about it: there are more than 3 times as many ps2s in circulation, but microsoft sells about half as many games. that's a pretty good number of game and accessory sales for someone with a quarter of the install base. the actual attach rate for the ps2 is downright atrocious, and has been since the system's release. i wouldn't be surprised if microsoft is more or less breaking even right now on the 360 with the levels of accessory and game sales they're maintaining (sans advertising budget, of course).

Jo @ Jan 27th 2006 2:02PM

The sales are so weak because here they've sold 1.5 million WORLDWIDE, whereas they had sold 1.4 million XBox1 in the US alone last time.

For comparison, the PS2 sold a million in both japan as well as in US on it's first WEEKEND there.

The big thing with rushing the console to market was to get a big headstart on sales, and basically there global sales so far could be eclipsed by a PS3's week-long sales in a single country.

That's why it's so bad. Ignore the facts and the industry analysis if it makes you feel better though.

http://www.reghardware.co.uk/2006/01/26/xbox360_hibernation/

Spartacus @ Jan 27th 2006 2:07PM

Yup, I helped add a few numbers to that graph.

Games purchased:
Perfect Dark Zero (Decent launch title)
Project Gotham Racing 3 (Awesome launch title)
And later Dead or Alive 4 (Awesome launch title)

Accessories purchased:
1 extra wireless controller
2 Plug-n-Play charge kits
1 controller rubber grip kit (Highly reccomended)
1 VGA cable pack
1 Planet 21 360 carrying case (I go to LAN parties)
1 Planet 21 360 DVD case

LIVE Downloads:
Fight Night Round 3 Demo
Condemned Demo
Madden 06 Demo
Red vs Blue 360 episode
A few movie and game trailers

So yeah, I think these numbers are completely legit. Out of all the people I know with a 360 (about 5), I have the least number of games, but probably the highest number of accessories.

Conclusion: The 360 luanch lineup wasn't nearly as disapointing as some people say. The vast majority of those who actually bought a 360 console and the games have enjoyed it immensely. LIVE has been integral to its enjoyability and it will only get better from here. I think it would be hard to call the 360 launch unsuccessful. They sold every console they made (excluding Japan, lol) and sold a TON of games and accessories which is of course the main goal for a company to produce a loss leader console in the first place.

If Sony misses their spring launch this year, MS will have plenty of time to make up in numbers what they SHOULD'VE done at launch. If Sony DOES make their spring launch and that includes a US launch, then MS may have a little less trouble meeting demand...

William @ Jan 27th 2006 2:14PM

m3mnoch: you always get your numbers wrong! Are you stupid or just a fanboy???

Do your homework, and provide links if your numbers aren't detailed in the article.

Here's an example:

http://www.theinquirer.net/?article=29000

elmer @ Jan 27th 2006 2:24PM

The financial causes that are being implied here are an absolute load of crap.

Microsoft entertainment division lost 300 or so million dollars this quarter as much because the system is sold at a massive loss as the cost of launching a system.

What's the problem? We all know this.
The problem is that it's being implied that the division would have done better had they sold more. That's a load of piddle tosh; they would have lost vastly more. The haemorhaging (mispelled) costs of the console (which they clearly underestimated) are due to poor yields, and the poor yields are the reason for poor production quantities. Had they ramped up throughput to offset the poor yields (indication is they did this anyway and still had serious problems) they would have lost more money, not less.

1up goes a step further and reports the previous quarter as profitable (40 or so million), implying they usually make money but the launch cost a lot.

DO NOT BE FOOLED.

They made 40 or so million the SAME quarter last year, off the back of HALO 2. That was in fact the only profitable quarter the MS entertainment division has ever had. 300 million losses is about the quarterly average for them. If it were me, I might just fire all of them. But hey, Old Bill's pretty affable.

MacAttack @ Jan 27th 2006 2:30PM

That seems about right, I bought 4 games, cod2, pdz, nfs, king kong. And my friends list on live usually show they have about 4 games aswell.

Mark Felps @ Jan 27th 2006 2:37PM

I keep seeing how awful these sales figures are, but the first Xbox sold 2.2 million in a year, and the 360 sold 1.5 million in a month. Just terrible.

Regarding losing their lead on the PS3...um, we'd have to have some idea of when it was going to launch to say that, now wouldn't we. Granted, if MS can't get boxes on shelves, they will piss away their lead, but they've got nearly a year left to sell before PS3 gets on the market if the "holiday"
rumors are true.

SuicideNinja @ Jan 27th 2006 2:48PM

The attach rate is not suprising. Since older audiences are now in gaming, there is generally more money to throw at a new console. I think gamers are getting used to buying multiple games at once so they won't have to come back to buy more right away. Those who do not have the joy of Xbox Live will need to the software to keep their system fresh.

No games were purchased with my system, but I purchased 1 every week for the following month. In the first week after the launch I did buy a second controller and the full sized remote.

I've see Core systems in the stores, but no Premiums. I think anyone who would buy a 360 this soon has to have the hard drive. When its popularity grows, more people may have interest in the core system...but if they don't start supplying memory cards with the core package systems then they are not worth it at all. I think Microsoft should have waited on the "Core" packaging until the Holiday season this year.

Highdef Edition @ Jan 27th 2006 2:52PM

Duerra .. You don't have to believe the 4+ attachment rate.. look at this http://forums.xbox.com/2018088/ShowPost.aspx

Most of us own more that 4 titles.

I myself have 5 XBox-360 title PGR-3, PD-Zero, COD-2, Fifa 06 & King Kong.

Spartacus @ Jan 27th 2006 2:59PM

Elmer:

Correct me if I'm wrong, but if a company sells more product, they can't make LESS money. MS has already spent the money on the plants, the employees and the parts to make XBOX 360's. Therefore the initial investment has already been plunked down. Selling systems at a loss doesn't mean they lose MORE money by selling them, they make $400 of that initial investment BACK per console sold. If I decided to have a bake sale, and purchased all the required items to do so, say costing me $40, then simply didn't follow through with it, I just lost $40. But if I did have a bake sale and sold all my brownies at a quarter loss, I still make $30, so now my overal loss is only $10. In MS's case, due to production limits and time constraints, they were only able to make a small number of "brownies", but their initial investment is still "$40". Therefore, the more units they could've cranked out, the better off financially they'd be.

Frank @ Jan 27th 2006 3:13PM

Spartacus - you are wrong

The initial investment (or capital cost) would be the factory, land, and equipment they needed to make the X-Box.

The operating costs (power bills, heating, employee pay, COMPONENTS), are what drive the business after that.

I have read a few times (no idea if it is true or not), that the X-box is selling for less than the components that go inside it cost. So, lets say they spent 40 dollars on the building and equipment... They are now in the hole 40 dollars. If they buy components for 2 dollars and are selling the x-box for 1 dollar, they lose 1 dollar for every x-box that comes out of the factory. They would in fact, be losing money by continuing to sell, and would be ahead of the game to just close up the factories.

One of the interesting rumours is that X-box is selling for less than it cost MS to create, which would explain why there were so few made. They got to market early, put up a minor loss, in hopes that the component costs go down in the future, so they can turn a profit.

It makes sense, If you were losing 10 dollars on every batch of brownies you made, would you prefer to make 1 batch or 10?

Remember also that MS does not get 400 dollars for every system sold, there is shipping and dealer mark-up as well as other things I am sure.

rip @ Jan 27th 2006 3:26PM

You need to correct that headline as it is blatantly false. Or ignorant.

xbox360 supply issues affected REVENUE, not EARNINGS.

As in topline revenue would have been bigger if they had more xbox360s.

Since Microsoft loses over $100 per 360, increased sales of the 360 would have increased the losses of the entertainment division.

Which means EARNINGS would have been reduced.

As it was they lost almost 300 million. Another 2 million in xbox sales would have meant another 200 million in losses. That would have been partially offset by other gains, like videogame license revenue, but overall losses would be greater.

Seriously, wtf, didn't anyone at Joystiq take an intro economics, accounting or finance course?

rip @ Jan 27th 2006 3:34PM

spartacus:

Microsoft doesn't own any plants for the xbox. Its all outsourced to companies like Celestica and Flextronics.

m3mnoch @ Jan 27th 2006 4:04PM

to my dearest admirer: william.

listen up, alice. here are a few simple facts.

first of all, i don't have to provide a link. i'm not contesting anything the article says. i'm talking about my opinion. you are just as capable (one would hope) as the next guy of looking up some freely offered, tertiary information that really doesn't even pertain directly to the current article -- or my comment.

my comment was about deducing why the shortage of north american units.

second, these numbers come from microsoft, who has to answer to shareholders and the justice department if they report incorrectly. your 'linked' numbers are from what an analyst group 'thought' weeks ago.

of course, i could just buckle under your opressive 'flame warrior' onslaught and provide a link just as accurate as yours. http://www.sesamestreet.com

third. your mother obviously did not hug you enough.

m3mnoch.

Spartacus @ Jan 27th 2006 4:08PM

Rip:

No, sorry, I wasn't a business major. I gues that's why I'm at the buying end of American Catitalism, lol. I see everyone's point, however I would disagree that MS is better off not selling consoles. If companies truly took a hit for every console they sold, Sony would be closing its doors due to its tremendous "success" with the PS2. Right now, yes, MS is in the "investment" stage of their product in hopes that later it will turn a large profit, but while December and January sales of the 360 console may have resulted in further financial loss, the 4+ games and 3+ accessories average sold per console AT A PROFIT would be cash in their pocket. Even not taking economics classes (I was an anthropology major) I know that MS and Sony aren't in the business to NOT sell consoles. True, more 360 sales MAY have affected these numbers in a negative way, but that would also depend on the business model MS was using as well. Basically, if company "Y" reports that they fell short of a financial goal due to product "X", considering they know their company's finances and infrastructure far better than any of us, I'll probably take their word over Elmer's or Rip's. No offense guys, your points were valid, but unless both of you own large corporations dealing with billions of dollars of cashflow on a monthly basis, I just don't see the logic in it. I'm not saying I'm right and you're wrong, I'm just saying I'll take a large public company's financial analysis over your's.

m3mnoch @ Jan 27th 2006 4:11PM

rip. this is a video game site, man. a little leeway is probably deserved. maybe a simple "pardon me, but" is in accord instead of some crazy flame? hmmm?

i mean. i totally agree with you (that's why i wrote up a 'corresponding' piece over on my site) but there are nicer ways to handle such a 'grievous' error on a shareholder... er... video game site.

m3mnoch.

brad77 @ Jan 27th 2006 4:48PM

It's interesting how the spin works. Here's the same story on Xbox Fanboy:

http://www.xbox360fanboy.com/2006/01/27/msft/

rip @ Jan 27th 2006 4:59PM

spartacus, I wasn't commenting on Microsoft's strategy. The strategy is, in fact, sound. Its pretty much the same as Sony and Gillette. I never said or suggested Microsoft was better off not selling consoles.

The idea is to sell the console at a loss and make the money back on games. Just like Gillette gives away the razor and makes the money on blades.

What I was commenting on was the misleading or misinterpreted entry by joystiq.

Microsoft didn't meet its expected REVENUE goals because of the xbox. It did however exceed EARNINGS estimates, which were largely unrelated to the xbox.

I think your confusing revenue with profit. Which is what Joystiq did.

It really isn't a matter of trusting Microsoft's numbers over mine. I'm using their numbers. And basically saying the exact same thing they said. Microsoft said that if it weren't for 360 shortages, they would have had more revenue. Which is exactly what I said.

As for knowing internal finances, well because of the law, as a publicly traded company, Microsoft has to report its financials. Unless they are breaking the law, the numbers they used and I used are the same.

They would have had more revenue if they had more xbox360s for sale. However, they likely would have lost more money in the entertainment division, at least this quarter, since the xbox sells at a loss. The goal of the xbox is not to make money from the console sale. The xbox makes money when that xbox owner buys his 10th game or so(that is just a guess, I don't know exactly at what point MS starts turning a profit).

Of course its more complex than that. The cost of the xbox will decrease over time as the parts become cheaper. Overall costs(marketing, administration) per unit will decline too. Of course Microsoft has done an internal analysis of what they need to do to get the xbox profitable. And no one was expecting the 360 to make money this past quarter.

Bottomline, the xbox360 sales last quarter were mostly a non-event to financial people. The only thing of interest at this point is installed base. Which is why Microsoft keeps talking about sales goals and how many 360s they expect to have sold a year from now.

It seems the confusion is a direct result of the misleading entry by Joystiq. Which is why I commented in the first place.

Oh and I wasn't directing the 101 courses comment to you, it was directed to Joystiq.

rip @ Jan 27th 2006 5:09PM

m3mnoch:

well, I didn't mean it to come across as a flame. I tried to clearly explain why the entry was wrong.

Maybe its just that I find it annoying that there are often basic factual errors from writers when it comes to reporting things like this.

The thing is, it could be largely fixed by simply changing ONE word.

Instead of "MSFT earnings fall short, Xbox 360 supply woes to blame,"

It should read "MSFT revenues fall short, Xbox 360 supply woes to blame"

Mirosoft EXCEEDED earnings estimates. So earnings did not fall short.

m3mnoch @ Jan 27th 2006 6:09PM

yep, yep. i agree. tho, i would imagine that the average reader on joystiq doesn't necessarily know (i suppose nor really cares to know) that sales != earnings.

which leads me to drop a 'props' on you for that last bit describing what it was that you were talking about.

besides, as hypocritical as this truism is coming from me: you'll catch more flies with honey than vinegar.

i'm honestly sure the guys at joystiq appreciate your note.

m3mnoch.

Spartacus @ Jan 27th 2006 6:47PM

"Ah, now I see" said the blind man to the deaf man...

Rip, thanks for the clarifier. I think this article (and subsequent debate) was beyond the scope of this website, lol. I apologize for my economic ignorance and appreciate the correction ;)

rip @ Jan 27th 2006 9:09PM

sadly it doesn't look like Joystiq is interested in fixing the headline. oh well.

The sad thing is someone is probably going to point to this blog entry as fact. When it isn't.

To clarify, earnings and revenue are different and its important to understand that.

GM had over 51 billion in revenue last quarter. But they lost 1.2 billion. In other words, 51 billion in sales didn't cover the cost of GM doing business.

Joystiq would say "GM earnings are 51 billion"

When in reality it should be "GM earnings are negative 1.2 billion"

kizza @ Jan 27th 2006 10:30PM

Of course the xbox1 sold more contollers..The 1st controler that came out was shite...so people were forced to upgrade to the type s controller.

And in australia they are charging $15o (aus) for an extra wireless controller, faceplate & perfect dark.

This is how they are making up sales on peripherals. By either forcing consumers to buy bundles or offering a good value bundle to up sales. thats why in australia they are offering only perfect dark. Most aussies will still buy PGR, DOA or Call of Duty, as these are the best games on it....

To the dude that said not many ps2 owners have 4-6 controllers.... Your wrong champ as most PS2 owners were ps1 owners & had controllers from that, that you could still use on PS2.

portnoy @ Jan 27th 2006 10:43PM

You shouldn't give people the finger if you're wrong.

"60/40 US/EU distribution"

My math may be wrong but it looks to me more like a 65/35 split which is about what I thought it would be.

60/40 was a good guess though. I just figured they would be smart to hedge toward the US a bit and it appears they did.

Varian @ Jan 27th 2006 11:06PM

Many of the 'business analysis's in the comments above are not accurate.

Microsoft predicted revenues from 11.9 billion to (greater if memory serves me) 12 billion. The actual revenues were 11.8. Keep in mind that when Microsoft makes predictions for its investors it ALWAYS deliberately underestimates it. So if revenues grow, Microsoft can point how it exceeded their expections. If it falls a bit flat, then it falls right in line. However, revenues fell short of the predictions. This is not good. Microsoft even admits this.

Colleen Healy, a senior director at Microsoft, told CNET News: "Overall revenue did come in slightly below expectations, mostly driven by our home and entertainment unit. We did have some component shortage issues for Xbox 360 that we believe are behind us."

Component shortage issues? So there is a part of the 360 that was having difficulties being produced which slowed down the entire chain.

Some above posts are saying that Microsoft actually launched a lot of Xbox 360s if you look at it worldwide and not a single area. This is true. But these same posters are making the classic mistake of thinking 1.5 million consoles were sold. No. 1.5 million consoles were SHIPPED and sold to retailers.

How many Xbox 360 consoles are sitting in Japanese stores? The financial statement considers these consoles as 'sold' even if they sit there.

How many Xbox 360 consoles are sitting on EBAY? Microsoft counted these consoles as sold. (and these actually ARE 'sold' even if they don't find a home)

How many Xbox 360 consoles are being replaced due to inferior units? The new ones shipped back are considered 'sold'. Sony does the same thing.

So, yes, the NPD numbers are not 100% accurate as they do not measure many retailers and online sales. However, NPD numbers should simply be used as an indicator of retail sales, not an indicator of all total sales.

It's only really fair to judge the Xbox 360 launch 6 months or so after it came out. Something went wrong in the production chain and hopefully that will be resolved.

But we cannot change the way how we view sales because Microsoft decided to launch in three territories so closely (the DS did as well, but was extremely more successful. It also had the problem of LCD production). We MUST view sales the same way we view every other game product to be fair. PSP was outselling the DS in Japan for a couple of weeks, shortages do not count.

The Gamecube outsold the Xbox 360 in all areas during the past few months except, ironically, in Japan. That's the unfortunate truth.

The 'we must look at all worldwide sales instead of a local territory' will not hold any water after the first couple months. If Microsoft cannot get the Xbox 360s to outsell the Gamecube or PS2 in regions of the world within the next few months, then Xbox 360 is destined to become dead last in the marketshare. If it does start outselling the other consoles then there there should be a lot of hope.

Besides, who cares if the sales of your game console are high or not? Just because something isn't best selling doesn't mean its not the best. I'm concerned that so many gaming fans stake their enjoyment of their consoles based its sales number. Xbox fans should be happy playing their console, not trying to declare (correctly or incorrectly) that their console sold "a lot".

gamer1 @ Jan 28th 2006 1:15AM

I think that Microsoft�s manufacturing plans for the Xbox 360 are completely off. Microsoft should have manufactured at least twice as much as they did for launch or sent an equal amount of units a month following the launch. It seems as if they felt they could slow down their production after they had sent their initial launch shipment out. Microsoft should also have set target of around 10 million instead of 4.5 to 5 million units sold by June 30. I�m not saying all of this because of the shortages, I�m saying this because if their goal is to become the console of choice for the next generation, they should have anticipated the amount that they needed to sell to do this.

If the Playstation 2 had sold 100 million units since it�s launch, that would mean that Sony had manufactured and sold an average of 1.4 million units per month since March 2000. Of course, since this is the average number per month, it does not take into account their manufacturing capabilities since launch or the rate in which the units sell during particular months.

If Microsoft plans to manufacture and sell 5 million units by June 30, they will need to manufacture and sell an additional 12 million units by Thanksgiving in order to equal the Playstation 2�s marketshare of average number of units sold over time, especially if this is when Sony plans to launch the Playstation 3 and Nintendo launches the Revolution. Perhaps Microsoft does not want to have Sony�s percentage of marketshare from the previous console generation in the next generation of consoles?

If Microsoft does want to be the leader for the console gaming market this generation, they better get a move on it, especially while there is still a high demand for the Xbox 360, before the launch of the Playstation 3 and the Revolution. The closer it gets to Thanksgiving, the more likely people will hold off on buying an Xbox 360 to purchase a Playstation 3 or Revolution.

Art Guy @ Jan 28th 2006 2:04AM

I seem to recal the PS2 U.S. launch getting half as many units as predicted (only 500k). It seemed to do ok in the end.

gamer1 @ Jan 28th 2006 4:49AM

The PS2 first launched in Japan and sold out with 600,000 units at launch. Somewhere between then and now, they were able to produce such mass quantities that the average rate of production for the PS2 turned out to be 1.4 million per month. Most likely around the middle of the PS2�s lifespan, they had been able to produce more than 1.4 million a month in order for the average to have risen from its original production rate.

Microsoft�s production rate is currently very slow. They need to fill the demand of the Xbox 360 before the hype of its competitor�s systems persuades potential customers to wait for the new systems. The more that they sell, the less likely the same customers would purchase another system during this short time span.

Merus @ Jan 28th 2006 6:10AM

So, I'm guessing this finally puts to rest the theory that Microsoft deliberately held back on Xbox 360s to increase demand.

portnoy @ Jan 28th 2006 12:15PM

"So, I'm guessing this finally puts to rest the theory that Microsoft deliberately held back on Xbox 360s to increase demand."

I concur. What many attributed to corporate trickery and hype management was in fact just plain ol' corporate incompetance and lack of supply chain management. Let us not speak of this again, at least until sony or nintendo screw up. Then we can unleash or conspiracy theories on them! :)

gamer1 @ Jan 28th 2006 3:48PM

I don�t think that Microsoft held back Xbox 360 systems to create demand. I think that they simply just couldn�t produce enough systems. I agree that having shortages creates additional demand, but if it were a conspiracy, that they were holding back systems, they would have filled the demand before Christmas time by shipping the held additional units. But they didn�t. It has been over a month since Christmas and the demand has still not yet been filled. This shows that they really just can�t make enough systems fast enough.

Perhaps through Microsoft�s eyes, they had done a great job at launch considering that they were able to deliver as many systems as they had after such short amount of development time for the system. Perhaps it was too costly to invest in more manufacturing companies to produce additional units, especially before knowing what the demand for the system would be. At least they know that there is not much demand for Japan, but for the US and Europe, they now know that the demand is there. This is where they will be focusing their new units within the next few months.

If Sony plays their cards right, they will manufacture at least 600,000 for Japan, 900,000 in the US and 500,000 in Europe for their launch in order to retain their market share percentage with the PS3. These numbers seem reasonable considering that the PS2 launched with 600,000 in Japan and sold out. The other numbers would at least counter Microsoft�s initial install base for the Xbox 360. However, even with these numbers, the PS3 would still create demand before Christmas, and with all of this time to produce PS3 machines, they could ship additional units in the US before Christmas to fill the demand. Just like Microsoft, Sony could run into issues with shortages to meet this demand. If they can�t produce that many systems, then Sony wouldn�t have to worry about being accused of a conspiracy.

The same with Sony goes with Nintendo. The biggest difference here is that Nintendo should not have a problem producing high quantities of systems due to the hardware technology that the system will contain. Since the hardware for the Revolution will be less powerful, they should be able to produce many more units faster, considering they had invested a comparable amount of money to manufacturing.

Maybe Microsoft doesn�t have to produce 1.4 million units a month. It seems that Japan is a currently a lost cause for them, which is unfortunate, but what else could they do? Microsoft will have a hard time creating demand for the Xbox 360 in Japan now, especially since the PS3 and Revolution are just around the corner. Microsoft could continue at their goal of 5 million units for June 30, with a slight expansion before Thanksgiving, if they allocate all of their units to the US and European markets. Perhaps they should try to lock down the US and European markets before their competitors enter the market. If they can create a large enough install base in the US and Europe, this could disrupt the Japanese development of video games, especially if Japanese developed games could sell more on the Xbox 360 than the PS3 or Revolution. If it does, more Japanese developers could consider developing games for the Xbox 360, and in turn, change Japan�s perspective of the Xbox 360 as a gaming console. Most likely, this will not happen, especially if Microsoft is not focusing their plans with the Xbox 360 in this direction.