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Microsoft Ramps Up Xbox 360 Shipments In Preparation For Playstation 3 Launch

Posted by iMark - 2006-05-03

Microsoft Corp. has ramped up shipments of its Xbox 360 console to widen its head start on video game rival Sony Corp.'s PlayStation 3, the software giant's chief financial officer said Thursday.

The world's largest software maker raised the bottom line of its Xbox 360 sales target range for the year ending June 30 to 5.0 million to 5.5 million units from an earlier range of 4.5 million to 5.5 million.

Increased Xbox 360 production eased some of its supply constraints, but it also lifted manufacturing costs and hurt Microsoft's profit margins, Chief Financial Officer Chris Liddell said in an interview.

"We made a conscious decision to be very aggressive on selling Xbox 360 consoles to get as much into the installed base as we possibly could ahead of Sony's launch," Liddell told Reuters.

"We're very happy with the market momentum, but from an earnings point of view, it's hurting us," he added.

In January, production shortages forced Microsoft to scale back its Xbox 360 shipment estimates for the first 90 days after the console debuted in North America on Nov. 22.

Liddell would not say the shortages are a thing of the past, but said the company has made improvements.

"We pushed the supply chain as hard as we could to sell as many as we could," said Liddell. "We haven't yet reached the positive position of having supply equal demand, because to some extent we continue to see very good demand."

Microsoft aims to build a loyal base of Xbox 360 users before Sony launches its own next-generation PS3 game console in November. Sony is the current game machine market leader with its PlayStation 2.

Sony said it plans to ship 6 million PS3 units by March, 2007.

Redmond, Washington-based Microsoft said Xbox third-quarter revenue more than doubled from a year earlier, up 133 percent, and it shipped 1.7 million consoles during the three months ended March 31.

The introduction of a third contract manufacturer, Celestica Inc. for the Xbox 360 helped to ease some of the supply constraints during the quarter, Liddell said.

Microsoft executives said on a conference call with analysts that the company plans to continue to spend heavily to boost Xbox 360 production. Those manufacturing costs are expected to again crimp the bottom line at its home and entertainment business segment in the fourth quarter.

The home and entertainment division, which accounts for about 10 percent of Microsoft's total revenue, posted an 85 percent rise in third-quarter sales to $1.06 billion. Losses at the division widened to $388 million from a $175 million loss a year ago.

Often, game console makers lose money from the production of machines only to make a profit from the sale of high-margin games over the life of the product.

Earlier on Thursday, Sony forecast its game division to register a 100 billion yen ($875 million) loss in the current business year ending March 31.



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