Market Overview

Microsoft May Reduce Xbox One Shipments (MSFT)

Microsoft May Reduce Xbox One Shipments MSFT

Microsoft (NASDAQ: MSFT) has reportedly lowered the number of Xbox One units that it expects to ship to retailers in 2013.

According to a DigiTimes translation of a report by the Chinese-language publication Economic Daily News, only 6.2 million Xbox One units will arrive before the end of the year. This is 800,000 fewer units than the original forecast of seven million units.

The shipment adjustment is being attributed to the poor yield rates of the camera module (likely the one featured in Kinect), the optical disc drive and related assembly.

While it is wholly possible that the next-generation Kinect may be more difficult to manufacture, it seems odd that the disc drive -- an industry staple for nearly 20 years -- would cause a problem. Thus far, there have not been any new or exclusive features that would make the disc drive more difficult to produce than the one featured in other electronic devices.

Related: Microsoft Tweaks Xbox One Before Launch

Microsoft is not alone in its struggle to manufacture millions of new game consoles. Sony (NYSE: SNE) has reportedly reduced its forecast for PlayStation 4 shipments not once but twice. The company is still expected to ship nine million units worldwide before the year is over, but Sony has yet to confirm this number.

Regardless of any supply constraints that may occur, Sony and Microsoft are expected to dominate the game industry for the next several years. This is a big shift from the last generation (2005 through 2011), which was led by Nintendo's (OTC: NTDOY) first Wii console. That machine has sold 100 million units versus 78.6 million for PlayStation 3 and 78.1 million for Xbox 360.

During this generation (2012 and beyond), Nintendo was expected to be a formidable competitor to Sony and Microsoft. While the Mario maker has typically released new hardware after its competitors, Wii U arrived a full 12 months before PlayStation 4 and Xbox One. This gave Nintendo a rare advantage in obtaining early sales.

However, consumers did not like the idea of paying $300 to $350 for a new console that didn't have many games. Nintendo tried to make up for its losses by apologizing for software delays and by hosting a public event at more than 100 Best Buy (NYSE: BBY) locations across the country.

According to IGN, that initiative has failed. During the second quarter, Nintendo sold 160,000 Wii U units worldwide -- far less than expected. Not only has the console sold at a slower rate than GameCube (Nintendo's least successful console), but Wii U's Q2 sales were actually lower than those for the original, seven-year-old Wii.

Related: Is the Wii U Game Onslaught Too Little, Too Late?

Nintendo's troubles could get worse if Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL) decide to enter the fray.

In an interview with CNBC, BGR's Jonathan Geller shared his belief that this could be the last generation of game-specific hardware. He said that is one of the reasons why Sony and Microsoft have been eager to talk about the non-gaming functions that come with PlayStation 4 and Xbox One.

"I think that's why it's important to watch the space so closely -- why you see Apple rumored to enter, Intel (NASDAQ: INTC)," he told the network. "A lot of companies are trying to get in there because at this point, it's kind of uncharted territory."

PlayStation 4 will be released in North America on November 15. Xbox One is expected to arrive two weeks prior.

It is not yet known when Google, Amazon or Apple will release their unconfirmed game-playing devices.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ


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