Getting All 1,700 Parts of the Xbox 360 to Market

Carl Bialik from the WSJ writes "Microsoft is hoping its Xbox 360 will further the company's goal to 'link the Web and entertainment of all forms in consumers' living rooms,' the Wall Street Journal reports, but 'one manufacturing misstep -- a shortage of graphics chips or a recalled hard drive -- could derail those ambitions and drag Microsoft's unprofitable videogame business even deeper into the red.' The WSJ traces the 1,700 parts that go into the device through the supply chain -- from two southern China factories, Rotterdam, and on to Toledo, Memphis, and ultimately, retailers in the U.S. -- and looks at what could go wrong along the way."

Comments

Speaking of bieng in the red...

[SteelFist]

Doesn't Microsoft lose money on every X-box sold in the first place?

Re:And this plagues only MS because...

[TheRealFritz]

This is not a challenge unique to Microsoft, of course.

Any hardware manufacturer has to properly plan lead times and coordinate parts supplies. At the same time, parts obsolescence is a big challenge to any manufacturer. Every one of those thousands of parts needs to be tracked and if obsolescence is pending, a suitable replacement needs to be identified and validated.

So the article simply points out the obvious: the more complex a piece of hardware, the more can go wrong with the supply line.
--
http://www.gloryhoundz.com/

Interesting that MS keeps on losing

[putko]

Bill must really think videogames are super-important; they keep losing billions, but Microsoft just keeps on going back for more punishment.

It seems so odd that they'd use their monopoly on desktop productivity software to try to build a videogame empire: history says that those get swept away pretty easily as soon as someone out-innovates you and comes out with a super-console. You can't build insurmountable walls (like in productivity software) to hold back your competition indefinitely, because gamers just get rid of their old gear.

Furthermore, there are always new gamers, and they have no loyalty to your old games -- there's always new boys growing up who need a video game. If you can't keep them happy, Sony/Nintendo/Sega will.

Wouldn't MicroSoft get a better return on investment from just making more software that works well with Windows? Even cellphones and IM/email devices would seem to have more in common with their natural advantages in productivity software.

Re:Interesting that MS keeps on losing

[10101001 10101001]

You're right. The XBox division has been turning a profit for 2 years. Unfortunately, net loss is still around $4 billion from 2001 to now. My understanding is they didn't even expect to see a net profit for any quarter until later. Given how much an XBox 360 is going to cost and how much it costs to make, it would seem that MS is still going to be dumping hardware in favor of trying to make up for it with game sales. So, I'd expect that hole to get bigger. But yea, they're probably post a net profit in some later quarter when hardware sales go down.

But, here's an interesting misconception from the grandparent:

It seems so odd that they'd use their monopoly on desktop productivity software to try to build a videogame empire: ...

Microsoft isn't trying to make a video game empire. As has been stated many times, Microsoft is more interested in being a home electronics empire. The XBox was just a stepping stone, with support for games and DVD playing (two places in Sony's turf). The XBox 360 seems a further extension of that. And Microsoft's push to get its media format on both new generation video discs only further cements its long term survival. It wouldn't suprise me if Microsoft's long term goal is to take over one of the MPAA companies or to simply join. After all, what better way to form a long-term monopoly than to not only own the software for every system in use but also the content, in an information age?

In the end, the XBox is merely an experiment of diversification. If it doesn't work out, they'll try something else. One thing is for certain: they're going to make damn sure to use their $40 billion to get a good footing in some other industry. Growth in desktop (and even server, assuming they ever get higher penetration rates) computing is a dead-end street. The only way for Microsoft to survive in the long-term, and keep their stockholders happy, is to be involved in a variety of industries. If Microsoft's business practices weren't so scummy, I'd be trully excited about what sort of things Microsoft can do by embrace and extending all varities of otherwise unrelated activities.

Microsoft Owns the Rights on All the Components

[MLopat]

That's right, we got the rights to all the components. That includes the CPU, wireless hardware, the bridges and even the GPU. So, if anyone along the way in the supply chain screws up by providing flakey hardware or limiting supply, we get a new supplier.

If you look at the Anandtech review where they disassemble the 360, you'll notice every component is branded with the Microsoft logo!

This is brilliant

[Locutus]

Just as word got out that Microsoft would limit supply of the new xbox in order to leverage the massive amounts of free press this gets( remember the Elmo press coverage? ), Microsoft pushes out a story of how fragile their production process is. Brilliant I say. Now it'll be easy to blame the supply chain instead of getting called on holding back production... Wait, isn't the WSJ.com usually a fee based site? Hmm, no problem getting to this article so I guess we have a sponsor to thank for this. Now who could that be? Can you say Microsoft? ;-)

Another interesting tidbit in the article was the $4 billion in xbox business losses since 2001! That's right up there with the ~$8 billion in losses for the Windows CE product lines. Hey, atleast they're consistant. ;-) But I suspect that the losses they'll create with this new xbox will allow them to surpass the WinCE losses somewhat quicker. So they have that going for them.

LoB