Microsoft admits XBox 360 channel now fully stuffed

Microsoft reported earnings this evening, and with it, they announced their actual results for XBox 360 sales over Christmas. The good news: Microsoft shipped 4.4 million XBox 360 units in the fourth calendar quarter of 2006. The bad news: the company only expect to sell another 1.6 million by July 1, lowering its projection of 13 to 15 million down to only about 12 million. These numbers nicely confirm Blackfriars' earlier prediction that Microsoft was shipping excess XBox 360 consoles to retailers to make its 10 million XBox's sold by the end of 2006.

The money quote on XBox 360 sales:

"We are just being cautious about the second half," said Liddell in an interview. "There is a reasonable amount of inventory in the channel."

Second-quarter sales at the entertainment and devices division rose 76 percent to $2.96 billion, but it lost nearly $300 million.

A quick marketing hint for Microsoft: advertising sales targets is just a bad idea. Yes, you get to set expectations so you can exceed them -- but that backfires on you when you don't. And worse, it makes you do things that from a business point of view make little sense, like stuffing the retail channel with products they don't want. Further, doing silly things to make artificial goals just tarnishes Microsoft's brand -- which probably wasn't the original goal.

But maybe Microsoft is learning that lesson. The entertainment and devices division also makes the Zune music player, which went unmentioned in Microsoft's public statements. No new projections were made for Zune sales, especially since Universal and Sony decided that sharing music via WiFi wasn't so welcome to the social after all and prohibited it. With Christmas over and the Zune WiFi feature losing its differentiation and mojo, that one million Zunes sold by June may turn out to be a tougher target to hit than the XBox 360 one was.

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