January 27, 2006

Microsoft Says Xbox 360 Sales Started Slow

SEATTLE -- Microsoft Corp. has lowered its 90-day Xbox 360 sales forecast due to production-related shortages but is holding fast to its target to sell between 4.5 million and 5.5 million video game consoles by the end of June, the company said on Thursday.

The world's biggest software maker, which said it sold 1.5 million units of its next-generation video game console in its December quarter, now expects to sell 2.5 million Xbox 360s by late February.

Its initial forecast had called for sales of 2.75 million to 3 million units in that 90-day time frame, Microsoft Chief Financial Offer Chris Liddell said in a conference call with analysts.

The Xbox 360 made a huge splash when it debuted on November 22 in North America, where it sold 900,000 units by December 31 and demand has outpaced supply. It also got a warm reception in Europe, where sales hit 500,000 at year end. But it was a different story in Japan, where response was tepid and sales came in under targets at around 100,000.

Microsoft's revenue in the fiscal second quarter ended December came in slightly below analysts' and its own forecasts, due to issues of short supply of the Xbox 360, Colleen Healy, Microsoft's director of investor relations told Reuters.

Liddell said Microsoft's third manufacturing partner, Celestica Inc., will come on board next month, helping to ease shortages.

He added that Microsoft continues to expect $1.5 billion in sales of Xbox 360 consoles, video games and accessories in the first 90 days. Video game and accessory sales have outpaced expectations.

Sony Corp., the world's biggest video game console maker, and Nintendo Co. Ltd are preparing to ship their next-generation machines in 2006.

(Additional reporting by Lisa Baertlein in Los Angeles)