Is Xbox 360 Stumbling as Holiday Season Begins?

With Microsoft corporate vice president J Allard preoccupied with the Zune MP3 player, his other charge, the Xbox 360 video game console, appears to be stumbling in the marketplace.  According to an analyst from Lazard Capital Markets, Microsoft won't meet its 2006 Xbox 360 sales goals, which had already been revised downward once. That misstep will give rival Sony, whose beleaguered PlayStation 3 console has suffered from a number of manufacturing difficulties, time to catch up.

"Xbox 360 sales appear to be tracking below current market expectations," Lazard analyst Colin Sebastian says. "Based on year-to-date sell-through trends in North America, we believe sales of Microsoft's Xbox 360 console are tracking closer to 4.5 million units for the year versus current market expectations in the 5-million unit range."

For the first four months or so of its availability, the Xbox 360 suffered from massive hardware shortages, leaving millions of disappointed customers around the globe. Microsoft apparently solved those issues by mid-2006, however. This new downturn appears to be based more on consumer disinterest than manufacturing issues. As result, Lazard says it is lowering sales assumptions for Xbox 360 and older games systems like the original Xbox, Nintendo GameCube, and Sony PlayStation 2. Meanwhile, the firm expects other next generation systems, like the Sony PlayStation 3 and Nintendo Wii, to sell better than previously expected.

Microsoft originally projected that it would sell up to 6 million Xbox 360 units within 6 months of its November 2005 launch. That estimate was later revised to 5.5 million units, and Microsoft said it would have over 10 million users by the end of 2006. Now, Microsoft is expected to sell about 4.5 million units during the entire calendar year 2006, so it will fall far short of its original goals, Lazard says.

As for J Allard, he's busy working on The Next Big Thing at Microsoft: The Zune. Unfortunately, the Zune may have some problems of its own. Analysts at Jupiter Research say Apple's iPod will continue to dominate the MP3 player market for at least the next 12 to 18 months. And Zune, analysts there say, offers only one major feature not found on the iPod. That feature, wireless connectivity to other Zune players, "isn't that compelling."