After hours Toolkit

Spinning around a sales model

Tags:
Consoles,
Games,
Hd-dvd,
Xbox

Tor Thorsen Gamespot

Published: 06 Feb 2006 18:30 GMT

Ever since the Xbox 360 went on sale on 22 November, 2005, it has been in scant supply in the US. At stores where the console could be found, long lines formed and occasional scuffles broke out.

According to a leaked internal memo, top US game retailer GameStop still hasn't fulfilled all its preorders and predicts it won't until the end of February — at the earliest.

Microsoft has conceded that there are supply issues with the console, and still maintains that the shortages are primarily due to the massive demand that accompanies any console launch. That assertion is partially backed up by the company's earnings report last week, which trumpeted the fact that 1.5 million Xboxes have been sold worldwide in the days since it launched. It's a respectable number, but still short of Microsoft's sales target, which predicted 2.75 million to 3 million units sold during its first 90 days on the market.

However, big sales figures come as cold comfort to Xbox fans still unable to find the 360 on store shelves. The main questions on their minds are: "When do I get to enter the 'HD era'?" "Will I someday be able to get an unbundled Xbox 360?" and "When the heck is 'Halo 3' actually coming out?"

ZDNet UK sister site GameSpot spoke with Bryan Lee, who was last week named as the chief financial officer of Microsoft's Entertainment and Devices division. The amiable executive, who has also been CFO of the Home and Entertainment unit, one of seven Microsoft business groups, was more than happy to discuss sales, as well as the 2006 Xbox 360 game line-up, rumours of a Microsoft portable gaming device, and what his company has in store when the Nintendo Revolution and PlayStation 3 launch later this year.

Q: So you guys said that you shipped 1.5 million Xboxes so far?
Sold. Sold.

I've got kind of a mixed picture whether that's in line with your projections.
Yeah, we didn't break out any projections for the quarter. If you recall, we actually said the quarter was kind of a weird number to measure against. That's why we gave the 90-day number instead.

It's basically in line. Yeah, I mean the overarching thing here is the demand was so great, and we would have liked to have had a few more.

Well, you guys conceded that there are actually supply issues with the Xbox 360. What exactly is behind them?
Well, it's difficult to build this kind of cutting-edge technology, but the real reason there's so few available is demand is just so phenomenally high.

Oh, I know, absolutely.
I said it that way because I want to make sure it's in the right context. If we missed anything about what we would have liked to have built, we're talking really small numbers. We've known for years that the demand was going to be greater than the supply at this point in time. That was further amplified by our strategic decision to go in day and date around the world. We thought it was the right thing to do for our worldwide consumers. We thought it was the right thing to do for our shareholders. And after the launch, we still feel exactly the same, if not more so.

So, if you split the difference between supply and demand, demand was always going to be big and supply was a little bit less than we thought. That's the way to think about it. We are slightly missing the quantity. We still think we'll actually sell over $1.5bn (£850m) over the entire Xbox world, $1.5bn dollars, which is an enormous number for 90 days of a consumer product. But like we said, instead of seeing 2.75 million to 3 million consoles, we believe the number will be 2.5 (million). That is a little bit less than we thought. My gosh, we wish we'd had a few hundred thousand more.

Is it a chip issue that's holding up supply?
No. It's anticlimactic in that it's just a collection of the stuff being really hard to do. Another way to think about it is a few hundred thousand units is a couple of weeks' worth of manufacturing, give or take. So, that's the magnitude of the challenge that we face is how to make up a couple of weeks' worth of production.

In its earnings announcement, Microsoft said that the 360 has been actually the key driver for the quarter. You said it's boosted the home entertainment sector 13 percent or whatever.
Yeah.

Once you see the supply actually meeting demand, do you see that number rising further or not?
Well, one of the things, the 13 [percent] is a little...