Xbox 360 shipments likely won't meet forecasts
Tags: Microsoft, Sony, Games, Gaming, XBox 360, Playstation 3, Marketing
With Microsoft's earnings announcement yesterday, Chris Liddel, Microsoft's CFO, commented about the effects of XBox 360 on future Microsoft earnings. This article in the Seattle Post Intelligencer notes three important points:
Another way to say this is that Microsoft is losing money in this business, but they intend to launch a new product that erodes its current business and will accelerate losses into next year.
But let's look at that last data point for a moment, because we've been big skeptics (documented in this, this, and this post) about whether Microsoft could actually manufacture these systems in the quantities they have promised. Assuming shipments of 5 million units by June 30, 2006, that's a production rate of about 23,000 units a day. And Liddel explicitly said he doesn't plan to have a "spike" of product at launch, which I interpret to mean, don't expect us to have a ton of product in warehouses in advance. The bottom line: Those numbers imply that there will be fewer than one million XBox 360s available for sale this Christmas worldwide, despite estimates of 1.6 to 3 million.
Now, that's actually good news for the business, since those early units will have the highest manufacturing costs. And high demand and little supply is good for building buzz about a new product (although companies like Apple often get trashed by the press for not anticipating demand when they launch hot products like new iPods or iMacs). But if we take success as winning share from Sony's Playstation franchise, this isn't going to be quite as merry a Christmas as Microsoft probably had hoped.
Whatever happened to that old marketing saw, "Undercommit and overdeliver?"
With Microsoft's earnings announcement yesterday, Chris Liddel, Microsoft's CFO, commented about the effects of XBox 360 on future Microsoft earnings. This article in the Seattle Post Intelligencer notes three important points:
- Traditional XBox sales are falling in anticipation of the XBox 360 launch, causing revenue to fall by $132 million in the last quarter.
- XBox 360 sales will have a larger negative earning impact than XBox because it is newer and has higher costs to build.
- Production volumes of XBox 360 will ramp up, not spike with the launch, resulting in shipments of 4.5 to 5.5 million units by the middle of next year
Another way to say this is that Microsoft is losing money in this business, but they intend to launch a new product that erodes its current business and will accelerate losses into next year.
But let's look at that last data point for a moment, because we've been big skeptics (documented in this, this, and this post) about whether Microsoft could actually manufacture these systems in the quantities they have promised. Assuming shipments of 5 million units by June 30, 2006, that's a production rate of about 23,000 units a day. And Liddel explicitly said he doesn't plan to have a "spike" of product at launch, which I interpret to mean, don't expect us to have a ton of product in warehouses in advance. The bottom line: Those numbers imply that there will be fewer than one million XBox 360s available for sale this Christmas worldwide, despite estimates of 1.6 to 3 million.
Now, that's actually good news for the business, since those early units will have the highest manufacturing costs. And high demand and little supply is good for building buzz about a new product (although companies like Apple often get trashed by the press for not anticipating demand when they launch hot products like new iPods or iMacs). But if we take success as winning share from Sony's Playstation franchise, this isn't going to be quite as merry a Christmas as Microsoft probably had hoped.
Whatever happened to that old marketing saw, "Undercommit and overdeliver?"
posted by Carl Howe at
2:44 PM
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