Microsoft Cuts Xbox 360 Shipment Forecast

Microsoft cut its fiscal 2007 forecast for Xbox 360 video game console shipments, citing unsold inventories in stores, and said it is trying to make sure its gaming division turns a profit in the upcoming fiscal year.

Chief Financial Officer Chris Liddell said Microsoft aims to ship a total of 12 million Xbox 360s by the end of its fiscal year on June 30, down from a previous target of 13 million to 15 million.

"We are just being cautious about the second half. It was always going to be a slow half. We've done very well in the first half. There is a reasonable amount of inventory in the channel," Liddell said in an interview with Reuters.

Microsoft's latest video game console made its debut in November 2005, roughly a year ahead of next-generation machines from rivals Sony and Nintendo.

Microsoft, which is locked in a three-way war with Sony and Nintendo for dominance in the $30 billion video game industry, said it shipped 10.4 million Xbox 360 units by the end of 2006. That includes consoles in transit, in stores and sold to consumers.

The company on Thursday reported a quarterly profit that topped Wall Street forecasts, and Liddell told Reuters that Microsoft expects to offset lowered Xbox sales expectations with better sales of premium versions of its Windows operating system.

The company raised its sales outlook on Thursday for the client software division, which includes its Windows operating system, to a range of 11% to 12% for the fiscal year from a growth target of 9% to 10%.

That offset an expected slower rise in sales from the entertainment division. Microsoft now estimates sales for that division rising 26% to 31% for the fiscal year instead of the previously forecast 33% to 46% rise.

Not Miss A Holiday Sale

Over the holidays, Microsoft made sure retailers were well-stocked with consoles. "Our goal was to not miss a sale," Peter Moore, corporate vice president of the Microsoft division that includes Xbox, told Reuters.

Retail market research firm NPD said U.S. consumers bought 1.1 million Xbox 360s in December -- just slightly more than the combined purchases of Sony's new PlayStation 3 and Nintendo's new Wii console, which were both in short supply.

Going forward, Moore said Microsoft intends to focus on delivering profits to investors. Microsoft had promised that its Entertainment and Devices unit -- home to its games businesses -- would turn a profit in fiscal 2008.

"We're very glad to see Microsoft is trying to rein in Xbox so it can be a profitable concern rather than a market-leading, money-losing concern," said Kim Caughey, an analyst at Fort Pitt Capital, which manages more than $1 billion in assets, including shares of Microsoft.

Moore had famously predicted that consumers would buy the Wii and the Xbox 360 for a price roughly equivalent to the $600 high-end PS3 -- a phenomenon known in gaming circles as the "Wii60 Effect."

Nintendo's machine was a break-out hit in the United States, selling 604,200 units in December by NPD's count. Moore said the success of that rival console, which retails for $250, did not come at the expense of Xbox 360 sales. "Both platforms seem to be co-existing pretty well," he said.

American Technology Research analyst Paul-Jon McNealy had a slightly different view, saying, "The transition to the next-gen consoles is a little turbulent right now, with Nintendo the only one nailing expectations."