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Xbox Launch Shipments Halved, System Delayed One Week

21 Sep, 2001 By: John Gaudiosi

Microsoft has delayed the launch of Xbox by one week and will ship approximately 300,000 Xbox hardware units for its Nov. 15 launch, rather than the previously promised 600,000 to 800,000 units, according to retailers and analysts in the videogame industry. Microsoft will then ship a steady flow of 100,000 to 150,000 hardware units a week through Christmas without the stoppages that plagued Sony’s PlayStation 2 launch last year.

The delay reportedly stems from production problems, which also impacted Sony’s launch last year and had an impact on Nintendo’s decision to delay Gamecube’s launch by two weeks earlier this year.

The company is still expected to ship just over one million hardware units by Christmas and is expected to sell every unit it ships, but Microsoft isn’t likely to reach the 1.5 million hardware units it had once said was possible by year’s end. Microsoft, which has been restricting pre-orders of Xbox ($299) through hardware bundles, expects half of its Xbox launch shipment to be available on retail shelves, while the other half will have been pre-sold through specialty video game retailers. Microsoft expects to ship 4.5 million to 6 million Xbox hardware units worldwide in its first eight months.

Production in Singapore-based Flextronics International’s Guadalajara, Mexico facility is expected to start any day now, and once running, the factory will produce 150,000 units a week. Sources say that the Xbox hard drives haven’t been installed yet and the final configuration has yet to be tested, which would be a prerequisite to shipping the hardware.

Anton Bruehl, president of the International Development Group, doesn’t think the shortage will make much of a difference in the end, since Microsoft is still on track to ship over one million Xbox units in the U.S. by this Christmas. Microsoft still has a head-start on Nintendo’s lower-priced $199 Gamecube system, which had its launch delayed from Nov. 5 to Nov. 18 to ensure a large launch provision of 700,000 hardware units on day one.

“I actually don't view it as a negative,” said John Taylor, video game industry analyst for Arcadia Investment Corp. “The best thing in the world is a shortage. Shortages build momentum and heat for a product launch. The worst thing in the world is to over ship demand, because that can result in overhang.”

“Getting Xbox out there on store shelves first, even with fewer units, is an advantage,” said Christian Svensson, director of strategic planning and business development, Midway Entertainment. “Microsoft has a small window of exclusivity, even though PlayStation 2 is on shelves and I think Sony will have a great Christmas, which should help Xbox as the first new gaming system this fall.”

“This is Sony part II,” said Robert DeLean, senior analyst at Morgan Keegan & Company. “Although every year with a new game system launch, the emphasis is on the new system, the reality is that the majority of this year’s video game money will come from the sales of older systems like PlayStation 2, PlayStation and Game Boy. Although a reduced launch number is disappointing, it will have virtually no impact on the gaming industry in terms of sales.”

“I think the impact will be much less than Sony’s PlayStation 2 reduction last year, since there will be two other systems on store shelves to give customers other options,” said Jeff Griffiths, president of leading specialty video game retailer Electronics Boutique.

But there are those who wonder about this launch reduction, especially since Microsoft executives had previously pointed out that the company had learned from Sony’s launch blunder last year.

“This is Microsoft’s second black eye (after pushing back the Japan launch until 2002) and it's tough to look pretty to consumers at launch with two black eyes,” said P.J. McNealy, senior analyst, Gartner G2. “If Microsoft still hits 1.5 million units or so by the holiday season, then all should be well because consumers have short memories.”

As part of its $500 million, 18-month marketing campaign for Xbox, which began at E3 this past May, Microsoft’s Xbox marketing will begin in earnest this October with a print advertising campaign in the November issues of gaming magazines. Teaser TV spots will begin in late October, close to the system launch. With the system launch on Nov. 8, TV ads focusing on the launch games will debut, featuring 27 seconds of gameplay and a few seconds of Xbox branding at the end.

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