Slow Production Slows Xbox 360 Sales

By Geoff Duncan January 27, 2006

Microsoft initially estimated it would sell 23.75 to 3 million Xbox 360 consoles within 90 days of the next-generation video console’s launch in North America. In its second quarter revenue statement, Redmond revealed that it expects to have sold 2.5 million units worldwide within 90 days of launch: not quite up to initial expectations, but not as big a shortfall as some marketwatchers have speculated. The company is standing by its estimates that it will sell between 4.5 and 5.5 million Xbox 360 systems by the end of June, 2006.

Although the market for the Xbox 360 in Japan has been tepid at best, demand for the new video game console has consistently outstripped supply in North America and Europe, partly, Microsoft claims, because of production constraints and component shortages during initial stages of manufacturing. Microsoft’s Home and Entertainment division revenues for the quarter were $1.56 billion, up 13 percent, primarily due to sales of the Xbox 360. However, the division as a whole posted an operating loss of $293 million.

Microsoft’s market position might be more dire if it were facing direct challenges from other next-generation console systems; however, neither Sony’s PlayStation 3 nor Nintendo’s Revolution have made it to market yet, and Microsoft continues to ramp up Xbox 360 production, trying to minimize untapped Xbox 360 demand when those competing systems finally ship. In the meantime, the Xbox 360 continues to await its first “must-have” game; one likely candidate is the next installment of Microsoft’s own Halo franchise, currently expected at the end of 2006 or in the first parts of 2007.

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