Microsoft Stumbles on Xbox Debut

Baldwin Louie — Fri, 21 Sep 2001 15:00:00 -0700

Microsoft has stumbled ever so slightly in its ambitious initiative to become a major player in the video gaming business.

The Redmond, Wash.-based giant announced on Friday that it would delay the launch of its Xbox gaming system by one week. It is now scheduled to be available in stores in the United States on Nov. 15 instead of the original target date of Nov. 8.

Assuming no further schedule changes, the lost seven days will likely have an insignificant impact, if any, on sales during the critical holiday shopping season. After all, notes Gartner G2 senior analyst P.J. McNealy, the parents who want to buy the console for their kids for Christmas are willing to wait a few extra days.

But in the ultra-competitive gaming market, the glitch was being scrutinized as a possible sign that Microsoft could be off to a shaky start.

For instance, the delay means that Microsoft no longer has a 10-day jump on rival Nintendo's launch of its new system, GameCube, which is slated to be on shelves here as of Nov. 18. As a result, both companies will face a head-to-head advertising and sales in their debut, with neither being assured of the limelight.

More important, the delay raises the specter that Microsoft may experience manufacturing and supply chain headaches as it begins to produce the Xbox. "This is a production issue," says McNealy, who this morning spoke with Microsoft director of Xbox sales and marketing, John O’Rourke. The company, whose expertise is software, has yet to prove that it can execute with the same acumen in the hardware business. "They call it hardware because it's hard," McNealy adds.

Even gaming veteran Sony has been flummoxed by the challenge of getting a new console into the stores, and last year it fell way short of producing enough PlayStation 2 consoles to meet demand in December.

Indeed, Microsoft executives on Friday were no longer saying that the company will launch sales with a supply of 600,000 to 800,000 consoles. Instead, its executives are declining to give any figure. This comes on the heels of gaming industry publications and analysts speculating over the last two months that the Xbox was having technical difficulties. Eric Ross, an analyst at Thomas Weisel Partners, was reported in August to have raised questions about the Xbox's motherboard design. Microsoft has denied any such difficulties, and Ross did not return a phone call Friday afternoon seeking comment.

Microsoft issued a statement Friday afternoon, an hour before the markets closed, assuring that its production was still on course. "Put a great big 'X' on Nov. 15," Robbie Bach, Microsoft’s chief Xbox officer, says in the release. "Xbox is the one worth waiting for. It's the only video game system being manufactured in North America. This is significant because it assures retailers that we can keep filling the retail channel with new Xbox units week after week."

Manufacturing of the Xbox has already started at plants in Gudalajara, Mexico, meaning that the company will not need to rely on planes or ships for delivery, and Microsoft exec O'Rourke told analysts that he had one of the first ones off the assembly line in front of him as he did interviews this morning. The estimated retail price remains $299.99.

The company also left unchanged the total number of Xbox consoles it plans to produce by the end of the holiday season. It reconfirmed that it will ship 1 million to 1.5 million Xbox consoles.

Delays in launch dates are not uncommon. Nintendo postponed its launch date for the Gamecube in August, moving the release to Nov. 18 from Nov. 5. Microsoft also pushed back in August its release of the Xbox in Japan to Feb. 22 so it could focus on the U.S. launch.

Xbox's U.S. debut is being closely watched throughout the world, and McNealy says the first impression will be important. He's ready to bet that Microsoft will pull it off, but this latest announcement doesn't make it any easier. "To consumers it won't make a difference, but within the industry it's a black eye," he says.

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Microsoft Stumbles on Xbox Debut