Michael T Hudson

http://biz.yahoo.com/rb/020410/tech_..._stocks_1.html

joshd2012

On a happier not, Metal Gear Solid 2 just cleared 5 million in sales. Microsoft has be on there knees begging for this one.

belboz

Yeah, I saw this earlier along with the write-ups on Flextronics that was mentioned in the article. All last week, analysts were revising downwards their revenue projections for MS due to lower than expected sales of XBox consoles overseas. Since each XBox is sold at a loss, this obviously didn't impact MS earnings.

Unfortunately, the same is not true for Flextronics and nVidia. Both earn money on each XBox made and lower sales impacts their earnings projections signfiicantly.

Overall, though, I wouldn't be too worried that XBox was going down the tank. It should have an installed base of several million in the US by the end of June and that's enough to keep most developers on board. If MS is able to put together an attractive system for online play, that should give them a little bump when it debuts.

gcribbs

not surprising. I expect few exclusives not being bought and paid for by microsoft on the XBox at E3 and more of the games that do go to microsoft going multiplatform either right away or very soon after release.

With a price drop from Sony a given expect even more problems for the Xbox. If micorsoft lowers their price then they delay the breakeven time and with the greatest hits titles sony is going to continue to go after those who held off due to high game prices.

Frankly the Xbox may be slowly moving towards the number three spot due to slow international sales and with that i expect to see slowing releases and more and more title slipage.

CreatureX

You are correct sir...

Wreckless and Enclave announced for PS2.

belboz

And one of the main drawbacks to outsourcing design and production for the XBox was that MS has really very limited abilities to cut the production cost of the console aggressively.
First, they pay a good sized royalty to nVidia for every XBox built. Then Flextronics has to actually make money on the manufacture of the box, so they need a reasonable profit margin.

And then there's little that they can do to the fundamental design of the XBox to lower costs. For example, there's no way they're ever going to get Intel and nVidia to work together to integrate a P3 with the NV2A.

Their only hope has been that component prices would go down. While I'm sure they've locked in an extremely good contract with Intel for the CPU's, the cost of DDR-SDRAM has actually been going up significantly.

Basically, if MS is going to cut the price of the XBox, they're only going to be able to do so by increasing the subsidy (i.e. the money they lose) with each unit they sell. It's a good thing they've got lots of cash. They may need it.

joshd2012

Microsoft can't cut cost back for a while without losing more money. Sony is planning to integrate the cpu and graphics on to one to chip. This will decrease cost, increase production, and increase profit. Microsoft is going to take a hurting on this one.

Gallant Pig

Yeah, we all know the price of computer components never goes down in price.

joshd2012

Well, most of the hardware in the X-box was specially made for the X-box. Why would any of the companies supplying parts to MS reduce their prices when they have no competition? As was mentioned, nVidia is already seeing a hit, so why would they lower their prices? X-box hardware by no means follows the same trend as computer hardware.

Gallant Pig

You mean the RAM in Xbox is special XBOX ram? Whatever. It's not. Ditto with the hard drive and the CPU. nVidia has stakes in the Xbox so they aren't exactly holding MS hostage on high prices. Within a year the Xbox will be twice as cheap to produce.

FonMan

Obviously you have not thought this through....let me enlighten you. They have no competition? What's wrong with your head? Of course they do, PS2, Gamecube, GBA, etc. If XBOX does not do better, how many graphics and processor chips do you think MSOFT will need? Its fairly simple. If Nvidia and the rest of the component manufacturers enjoy their fat MSOFT contracts, they will lower their prices as much as they can, possible going all the way down to cost. They have just as much, if not more, to lose than MSOFT.

Having said that, XBOX is not in imediate trouble. They new their would be huge problems in Asia and the reports that I read say that the demand is good in europe. I think that their are way too many fan-boys typing hype on this. I seem to remember alot of critical comments on the PS2 when it was launched and it seems to be doing just fine. MSOFT is in this for the long term, not just the 6 months after the launch. It might take a while, but I believe it will be successful due to its technical superiority. It will just take a while for developers to take full advantage of it.

It also amuses me how many people are bound and determined to see the XBOX fail. Dont these people have lives? If you wrap your whole existance on what video game platform is superior, you are bound to be the loser working at Taco Bell when your are 45 wrapping up my chalupa order! I bought my XBOX a couple of weeks ago and I love it. Here are the people who told me to stay away.

1. Best Buy Loser #1 - Roaming idiot
This moron told me that the XBOX's are on the isle that nobody goes down. He also told me that they have stopped shipping XBOX games until they have more demand. I then had to fight my way down the isle through 3 others picking up X-gear.

2. Best Buy Loser #2 - Register Idiot
Moron #2 told me the purchase was a mistake and tried to get me to put it back once I got to the register. His claim is that 70% of all XBOX's are defective out of the box. He then told me to buy the exteneded warranty (which I did becuase it was actually a good deal) because I might need it. He then tells me that he has traded his PS2 in twice under his warranty (huh? I thought the XBOX was the defective system) Loser then tells me that I will be forced to take my game to customer service to varify that it actually boots up. If I refuse, I could not bring it back. At this point I told him he really needed professional help and that not only does Best Buy have a return policy, but MSOFT has a warranty and he also just sold me an additional 2-year warranty.

3. FUNCOLAND Idiot.
I went to funcoland to trade in my dreamcast and pick up an extra controler and the xbox baseball game. I asked the dude about the "mad catz" controller. He told me it sucked. hmmm, ok. how about the one next to it? "it sucks" How about the Japanese version controler? "Terrible" he says. I thought, wow, how can all the controlers be bad. I asked for a recommendation. His answer was to show me a PS2 controller and recommend the $299.00 PS2 "attachment" for it. At this point I'm pissed, I asked what his problem is. He tells me that he tries to steer people away from the xbox when he can because he is a "serious gamer" who sticks with SONY no matter what !!!!!!!!!

I personally love the big controller of the XBOX, it fits my fat hands alot better than the other systems, especially Gamecube.

There are more in this saga, but its late and I need to go to bed.
The moral of the story is this. If you like your system, GREAT ! buy it and support it. But keep off the BS of trying to be the counter-marketing department for your consoles manufacturer, it's lame.

belboz

I think halving the production cost for MS by this time next year would be extremely optimistic.

With Intel, they were able to negotiate a very favorable price since they had initially threatened to go with AMD and Intel was forced to step in at the last minute and low-ball the price in order to get the win. So there's likely not a whole lot of fat to trim there.

With nVidia, MS made an up front payment of $200 million for them to design the chipset which includes the NV2A GPU core in the north bridge. Plus there's a royalty paid for each unit manufactured. All the terms for this deal are likely bound by a very long-term contract.

The memory is and isn't standard. While it is DDR-SDRAM, it's a special Samsung DDR part running at the equivalent of DDR400. The vast majority of current DDR-SDRAM is DDR266. JEDEC only recently ratified the DDR333 standard and they likely won't bother defining a DDR400 standard since they'll be going to DDR-II. So, MS can't really go to a spot market and buy the memory they need. They certainly have a choice of more vendors since Nanya, Micron, and Infineon could all conceivably produce these parts, but since it's a specialized part, the cost for it is always going to be a bit higher than the standard parts. In any event, have you noticed that the price for DDR-SDRAM has doubled in the last 6 months? You can't take it for granted that memory prices are always going to go down.

Finally, even if the price of the components go down significantly, there's still the cost of assembly. MS has outsourced the manufacturing to Flextronics, which allowed them to quickly get into the console market at a lower up front cost while sharing the risk of failure with Flextronics. Unfortunately, this arrangement also means that it's extremely difficult for MS to be sure that manufacturing costs are being cut as aggressively as possible and also Flextronics will be taking a chunk of the profits with each XBox made as well.

And of course, we haven't even figured in that $500M marketing budget. Back in November, Mary Meeker (I believe that was her name), a Morgan Stanley analyst, wrote a report that got a fair amount of press at the time. She figured that MS wouldn't break even on the XBox until 2004. I'm quite certain that estimate didn't factor in the eventuality of a price war.

belboz

Look, none of us really knows exactly what's going on. We're all just guys who are fascinated by the industry and find it fun to spend a little time talking about it. To that extent, there's probably something a little wrong with all our heads.

As to your points regarding Microsoft's XBox suppliers, I ask you to read my reply to Gallant Pig. I rambled a bit, but basically my point was that MS isn't going to have an easy time of it cutting their costs for the XBox. They're either locked into long term contracts or are reliant on partners who are taking a chunk of their profits. You are correct of course, that to a certain extent each of these partners have a vested interest in XBox doing well. However, let's not kid ourselves, they are all profit-seeking corporations and none of them are going to be giving MS anything at cost.

If anything, they know MS stands to lose more than any of them should the XBox fail and they know that MS has plenty of cash. They only need to lower their prices enough not to piss off MS enough to go find another supplier/manufacturer. On that basis, both Intel and nVidia are immune since trying to switch to AMD or nVidia would require too much of a redesign.

BTW, the ticker symbol for microsoft is MSFT.

You're right that the XBox is in no immediate trouble. It's doing a bit better than expected here in the states. It's doing miserably in Japan and it's not doing too great in Europe where only Great Britain seems to have really taken to it. I think most reasonable people would agree that those are the facts; regardless of who's saying it, fanboys or not.

There were plenty of complaints about the PS2 when it first came out. They were hard to find, there weren't any AAA titles at launch, it was hard to develop for, it was expensive. There were just as many complaints about the PS2 as there have been for the XBox. The only thing that was never said about the PS2 was that it wasn't selling or that it might fail. Anyone who paid any real attention to the industry couldn't possible say with a straight face that PS2 might fail. It's success was just about fore-ordained and to a large degree was a self-fulfilling prophecy.

By contrast, since day one when they first announced XBox, MS has had to struggle to prove that they would be a contender in this market. They continue to face questions about whether they were going to be a real gaming company and that they have what it takes to fight it out toe to toe with Nintendo and Sony.

To their credit, I think MS has done very well so far. They've established a very strong position in North America almost overnight. The only doubts I've seen expressed by reasonable observers is that they may need to cut their price much earlier than originally planned, especially overseas. Even if they have to match Sony at a $199 price point, MS easily has enough cash to absorb the loss.

I'm not sure who you're talking about. Certainly the losers you mention in the stores have waaay too much time on their hands. Most of the people on this board, though, are pretty cool. Certainly some of them have f'ed up opinions , but for the most part they're all well-informed opinions. And the whole point of it all is to discuss these varying opinions in a friendly way. If we all agreed on everything, this place would have like 3 posts.

The only really lame thing that I see on this board is when people aren't careful enough in what they say to make it clear that they respect other people's beliefs and opnions. For example, asking someone if there's something wrong with their head is sort of a funny way to put things, but without smilies or any other indications to show your good will, one could easily get the wrong idea.

gcribbs

gosh in 5 years i will be at Taco Bell

and I can't even ask if you want fries with that


lighten up a bit. this is just a group of people talking about some video game consoles. you just seem real angry when you are telling us to lighten up.

I think my head is ok but thanks for asking

Competition as used by Belboz means multiple suppliers all with interchangeable parts that can be used in the manufacturing of the Xbox. not does the Xbox itself have competition. Does Intel have to drop the price to cost or below to make microsoft happy-

No. why because who else is microsoft going to use?

Amd? then they need to rework the system to allow the use of the new cpu. causing shortages and delays in the manufacturing of the xbox.

for Video: Nvidia has almost no competition so who does microsoft leverage against nvidia?

Ati- same problems as seen with the cpu.

really other than dvdrom drives and maybe ram in the long run. they are stuck.

what leverage does microsoft have with Intel and nvidia?
Intel is still the strong number one cpu producer. microsoft is not even a computer manufacturer who could move other business away. they only have the Xbox sales to cost Intel. If they disappeared it would be a drop in the Intel bucket.

Nvidia has already killed almost all competition in the video card business so what leverage does microsoft really have. In fact if the Xbox disappeared nvidia keeps the technology they developed using microsofts money. so do they really lose?

The only loser here is microsoft. I think they will stick with the Xbox. I just see less titles and less exclusives as the Xbox sees itself falling further behind the PS2.This is not a dreamcast in the making. two years from now the XBox will still be around. It just will be the number three console behind a huge PS2 installed base and Nintendo's Gamecube who will by then have command of the number two spot due to international sales.

People keep mentioning the XBoxes technical superiority tell that to Beta. it really is not a factor in this other than another reason why it costs more. In fact it might just prove to be its liability.

Of course people will disagree with me- no biggie. that is why I am not the only one who posts

Jackskeleton

hey guys... Reminder about Console Bashing - DON'T DO IT!


this is just an article about the whole factor that xbox sales are not up to what they thought there would be, lets keep it civil, ala, kill the taco bell working jabs

gcribbs

actually I like taco bell

I ate there for dinner tonight.

ipkevin

That doesn't sound too good for X-Box even though I doubt Microsoft ever expected strong Asian sales. I'm glad I haven't bought one yet. However, I have to say some posts here are hilarious in their "cup half emty" doomsday spin on every single thing. Would one of you guys please give a similarly pessimistic summary on the PS2? I haven't bought a DVD in months, so I need the entertainment. Surely someone can come up with a raving apocalypse rant about how Sony had to pour in millions upon millions to redesign the hardware and then retool their factories to handle the new design?

I do have one serious question though - Wasn't the off-the-shelf philosophysupposed to mean that the X-Box is cheaper to make than a largely custom hardware like the PS2?

Spiderbite

Weren't the same things (bashing, eternal doom soothsaying, etc.) being said of Sony when they decided to enter the gaming ring against the then heavyweights Nintendo & Sega?

Who's their daddy now?

FonMan

Instead of posting numerous replys, I will try to hit it in one post.
First of all, to all of those who thought the "check your head" comment was somehow negative, let me follow up.



Hope that is enuff smilley's to keep everyones comments in check

I still think some of you are missing the point about the component manufacturers. Yes, it is true that both Nvidia and Intel have MSOFT (i never said this was a ticker symbol BTW) over a barrell when it comes to suppliers. But you are still missing the point. When a company dedicates as much resources, production facilities, people, processes, supply lines, vendors, time, and BUDGET FORECASTS based on the number of XBOXES that MSOFT sells, you have a VERY vested interest in seeing it succeed. These companies understand the console market and the need to keep things lean in the beginning to reap huge cash windfalls down the road. What is intel and Nvidia going to do with all of their chip inventories if it goes wrong for MSOFT??? sell them to Sony? uh, no.

The only time that the chip companies will have MSOFT and a disadvantage is when (or if) the XBOX becomes a huge success and they are flying off of the shelf. Then the chip companies can strong-arm them and raise the prices.

Michael T Hudson

That is a very good point. I picked up a Playstation on 9/9/95 and remeber that EA did not put out Madden the first year because they were not sure how the console was going to do. Only time will tell but I am happy with all four of my game systems.

Groucho

Very true, but for every Sony Playstation there's a Phillips CDi (or any other number of failed consoles). The PSX was the exception, not the rule.

joshd2012

In my defense, even though belboz did a pretty good job explaining my point, I never said that the X-box didn't have competiton as Fonman suggested. I said that the companies which produce parts for the X-box don't have competition with other companies which could produce the same parts because of contracts and design (as belboz explained). I am not trying to say that the X-box is going to fail, I'm just explaining why it would be hard to cut cost.

Sony is going to cut cost, that is a definite thing. If the price reduction is enough (which I don't think it will be) Nintendo will cut prices. That will leave the X-box a lot more expensive then the alternatives. The X-box may be doing okay in Europe, but I refer you to the article which stated that the X-box was going for the US equivalent of $150 with cell phone purchase or something like that. That is not the sign of a healthy market. Its not the sign of a bad market, but they sure aren't flying off the shelves as MS would like them to be.

It will be a hard road for Microsoft, but I do not wish that they fall. I figure that the X-box is only pressuring designers to make better PS2 games, which is good enough for me.

DVD Lamer

Better PS2 games? All I see is PS2 ports and PC-ish games. I was hoping MS would revolutionize gaming. One way is bring more Japanese type games that would never have been localized here before. The ones that fans have been begging for ages and that companies still refuse to localize cause sport games is an easier cash cow. The revolution in gaming is getting marketers that have a clue.

Josh H

DVD Lamer:

He meant that the X-box's existence forces PS2 and GCN to come up with more quality games in order to compete.

As for the odd-ball Japanese games, MS would have to get the Japanese developers to port the to the system, something that isn't likely to happen given the X-box's poor sales in Japan.

Scheherazade

I work in a toy store and we sell plenty of PS2 but the X-Box and Gamecube sales are dismall (1 X-Box game and no Gamecube games sold in the last 2 weeks while we've done over a dozen PS2s plus a couple systems). It spells out dead system from where I'm standing which is a shame because I was really looking forward to owning an X-Box. I would ask the guys in EB how their sales are stacking up but they lie to folks to sell stuff so that wouldn't help.

Hopefully as we near Christmas we'll see a rise in sales so I can make a decision.

~Scheherazade