NEWS - Friday, April 28, 2006

Microsoft Shipping More Xbox 360s

Microsoft said Thursday it will sacrifice some of its profit margins to continue ramping up shipments of the Xbox 360. The company hopes to get a head start over competing next-generation consoles, especially Sony’s PlayStation 3. However, short-term issues with profitability may end up paying off in the long term. As the company sells more units, it will in turn sell more accessories and games, for which It receives a small licensing fee. The boost in shipments has also allowed Microsoft to increase its predictions of overall sales for the fiscal year ending June 30. The company now expects to sell 5 to 5.5 million Xbox 360 consoles, up from earlier predictions of 4.5 to 5.5 million. Supply issues have dogged the Xbox 360 since its launch. Production shortages in January caused the company to scale back its initial shipment goals. However, the addition of a third manufacturer, Celestica, has eased the problems. Still, Microsoft will not say that the shortages will end. Company executives note that they have yet to reach a point where supply equals demand, because the console remains highly sought after. The company will continue to spend heavily on manufacturing the Xbox 360 into the fiscal first quarter, and it warned that the move would again cut into profits. In the third quarter, Microsoft’s Home and Entertainment Division, home to the Xbox team, posted a $388 million loss on $1.06 billion in sales. This was double the $175 million loss of the year ago quarter, but revenues for the division were up 85 percent.


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