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Sunday, December 25, 2005

Myth-Busting the Xbox 360 Shortage

Myth-Busting the Xbox 360 Shortage

"Ah, the holiday season, when you can’t open a newspaper or magazine without reading about the hot new item that has people lined up around the block. This year, it’s Microsoft and its Xbox 360 making headlines—but there’s more to this story than usual.

As if Microsoft isn’t already enough of a lightning rod, the company is now under fire for allegedly misjudging demand, failing in the supply chain, or possibly even intentionally creating a shortage for the new video game system. Although Microsoft remains tightlipped on the matter, a more thorough review of recent history, paired with the realities of the high-tech manufacturing supply and demand chain, expose some slightly less sinister possibilities.

New product launch realities

When building a sales forecast, one of the most rudimentary tools available to a manufacturer is past sales performance. In this case, the launch of a new gaming platform is certainly not unprecedented.

The 2001 introduction of the original Xbox saw 1.1 million boxes shipped within North America in the first three weeks, rising to 1.4 million in the next three weeks. Rival Sony received tons of bad press back in 2000 when it could only manufacture 500,000 PlayStation 2 units before it ran into component supply problems.
By comparison, this year’s launch of Xbox 360 saw between 300,000 and 400,000 units shipped just after the November 22 launch, and roughly 300,000 more as of December 20. Another 400,000 units have gone to Europe and Japan, which tallies up to about 1.1 million boxes in just more than four weeks.

Considering the greater complexity of the new-generation consoles, the production rate seems well in line with previous launches, and looks downright spectacular compared to PS2.

Reason No. 1 for the shortages

The most likely reason North America is seeing a heightened shortage this year is twofold. First, unlike previous game console launches, there is no other competing product launching in unison to help distribute demand. The original Xbox faced the Nintendo GameCube launch within three days of its own.
Microsoft’s shipment of 400,000 units abroad this time around clearly shows that it has put a priority on seeding the European and Japanese markets ahead of Sony’s PlayStation 3 launch next year. In Japan, where Sony has typically done well, demand for the Xbox 360 has been slower than anticipated, perhaps the greatest flaw in demand planning on Microsoft’s part." [more]

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