Wednesday, April 09, 2008

Console Post of the Week

I haven't done a console post in a few weeks because there just hasn't been much happening. Now I think there are a few questions worth asking.

For one, WTF is Microsoft doing?

David Wolfe sent me two interesting links in terms of 360 supply. The first, from DigiTimes, said this:
Wistron is reported to have phased out of Xbox 360 production and has ended its six year cooperation with Microsoft, according to market sources.

With Microsoft dropping its selling price of the Xbox 360 console earlier this year, it tried to push the profit pressure onto its three OEMs, Wistron (who accounted for 40% of shipments), Flextronics (40%) and Celestica (20%), by asking them to lower their OEM prices.

Wistron decided to stop taking Xbox 360 orders at the end of the third quarter after trying to negotiate with Microsoft over a quarter long period.

Flextronics has taken over the majority of the Xbox 360 orders, increasing its OEM production to over 60% of total shipments, while Celestica still remains as a second OEM.

...Wistron declined the opportunity to comment on this report.

That would be the third quarter of last year.

Well, this certainly seems plausible, and if Wistron did pull out, it would have left a gap in inventory until Flextronics was able to ramp up. That could account for the inventory shortages early this year.

It's hard to believe, though, that Microsoft wouldn't have planned for the contingency. Would they allow a 40% hole in their capacity, even for a short period of time?

Giving even more plausibility to the scenario, though, is this report(also from DigiTimes) that appeared on March 18:
Pegatron Technology and Unihan Technology, two OEM makers spun off from Asustek Computer, have reportedly secured OEM orders for Xbox 360 consoles and will undertake the production at their factories in Suzhou, China, with an initial monthly shipment volume of about 500,000 units, according to industry sources in Taiwan.

Pegatron and Unihan, however, declined to comment on the report.

Wistron originally was the Taiwan-based OEM maker of Xbox 360 consoles, but decided to discontinue the OEM production due to gross margins being too small, the sources pointed out. Despite thin profitability for OEM production of Xbox 360 consoles, Pegatron and Unihan are willing to do so in line with their 2008 revenue goals, the sources indicated. Singapore-based Flextronics International is currently the largest OEM maker globally of Xbox 360 consoles, the sources said.

In addition to the Xbox 360, Pegatron and Unihan are undertaking OEM production of PlayStation 3 consoles for Sony, the sources noted.

It's inconceivable to me that two years after launch, inventory could be this badly bungled, but this lends credence to the theory that the shortages are due to manufacturing capacity. That's not the theory I put forth last month, though, because my theory was that there were manufacturing issues involving yield or reliability with the Falcon systems. Now, based on these two stories, it just looks like incredibly poor planning when negotiating with a manufacturing partner.

I become suspicious when things that should be easy for a company suddenly become hard.

In the last six months, Microsoft has had all kinds of easy things (for them) suddenly become hard. The repair service, which had formerly been reliable, had turnaround times double or more. Xbox Live, which has been absolutely superior, went through weeks of instability. Now it appears that strategic planning at the manufacturing level has, for some period of time, just failed.

It may not be the great unwinding, but I think these events imply that decisions at a strategic level are having a destabilizing effect on the entire 360 ecosystem.

Yes, I sound like a tool for using "ecosystem" like that. I know.

So will there be a price reduction for the launch of GTA IV? We're down to twenty days and counting, and if there are new models, Microsoft is waiting very, very late to announce them.

One upcoming new product did apparently get revealed this week, though: a new controller that is, um, remarkably similar to the Wiimote (sans nunchuck). Here's an excerpt from an MTV story that broke yesterday:
The controller itself isn't much different in functionality or design from Nintendo's Wii remote, but comes with four face buttons, an analog stick and microphone. There are also plans for the controller to interact with the Xbox Live Vision Camera, the source said.

Microsoft's controller isn't just a response to "Wii Sports"; it's slightly more ambitious. "They want the usual assortment of 'Halo'/ 'Gears'/ 'Forza'/ whatever, just in waggle form," our source told us. Such idea-generation has not gone smoothly. "The whole thing is a colossal clusterf---," the source said. "[Microsoft] marketing just want it so they can match the Wii point for point. The biggest parts of their marketing materials outline how easy it would be for third parties to port their Wii games to the 360."

Halo in waggle form. Microsoft certainly understands what's making the Wii sell, don't they?

Today, there was a story over at 8Bit Joystick that added additional information: the code name is Newton, early dev kits are in the field, and Microsoft may have licensed patents from Gyration (like Nintendo did).

I'm sure analysts are going to position this as a "serious threat" to the Wii, mostly because analysts still don't understand the Wii, and neither do Microsoft or Sony.

From day one, Microsoft and Sony have been baffled by the Wii. It was a toy, it wasn't for serious gamers, people would outgrow it. Now Microsoft seems to have convinced itself that if they just had "the gimmick," too, no one would buy a Wii, because hey, we all know that the Wii isn't a true next-gen system, right?

Wrong, wrong, wrong.

The Wii has become a phenomenon. I know all kinds of people who have little or no experience with games talking about the Wii. The Wii has become a concept that people just dig. It's closer to what most people think of as play.

Releasing an add-on controller that copies the Wiimote is going to do two things for Microsoft: jack and shit. Sure, they might sell a few million units, particularly if they could create a game to match Wii Sports or Super Mario Galaxy. But releasing a peripheral that doesn't come standard with the console is always difficult from an installed base perspective, and by the time this controller even reaches the market, the Wii is going to have a worldwide installed base of over 30 million.

How many people will have this Microsoft controller? 0.

That's a gap, in case you're keeping score at home, of over 30 million.

So third party developers are going to race to port their Wii games to the 360 to support the new controller? Why, exactly?

The Wii asks some fundamental questions about what games are and how we play them, and that's why the system has been so stunningly successful.

Microsoft does not appear to be asking those questions.

Tomorrow: GTA IV, Sony, and Nintendo.

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