Analyst: Xbox 360 Underperforming

October 24, 2006 | By: James Brightman

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Colin Sebastian, an analyst with Lazard Capital Markets, has noted that the Xbox 360 has been tracking below market expectations likely because of the "slower-than-anticipated introduction of new software." The 360's software/hardware TIE ratio has been strong, though.

Lazard Capital Markets analyst Colin Sebastian in a research note today indicated that Microsoft's Xbox 360 could be doing a bit better. "Xbox 360 sales appear to be tracking below current market expectations," he said. "Based on year-to-date sell-through trends in North America, we believe sales of Microsoft's Xbox 360 console are tracking closer to 4.5 million units for the year versus current market expectations in the 5-million unit range."

Sebastian continued, "Xbox 360 supplies improved significantly over the course of the year following initial hardware constraints, and it appears that pent-up consumer demand has largely been fulfilled. However, it is possible that an expanding software release calendar, as well as limited supplies of new PS3 and Wii hardware could help boost 360 unit sales over the holidays."

Additionally, Sebastian has revised his 2006 software growth forecast for North America to reflect a more optimistic outlook. He has increased the forecast from flat to down five percent to growth of about six percent.

"Specifically, according to NPD data, year-to-date software sell-through is up 5.7%, which is ahead of our original expectation for the year, we believe due to a strong Xbox 360 software/hardware TIE ratio (5.1x life-to-date), better-than-expected sales of Nintendo DS software, and solid sales of current-generation Sony PS2 titles. Our dollar estimate for console and handheld software sales in 2006 is increasing by $583 million to $6.5 billion—up from $5.9 billion," Sebastian noted.

While Sebastian is revising his hardware forecast downward, he does expect a greater number of next-gen and portable units. "In our revised 2006 industry model, we are increasing estimates for sales of Nintendo Wii, DS, and Sony PS2 hardware, while lowering our unit assumptions for Microsoft Xbox 360, Xbox, Nintendo GameCube, GBA, and Sony PSP hardware. Overall, these changes yield a net decline in our estimate for the total number of hardware units sold this year, but importantly, they also reflect an increasing mix of next-generation and new handheld product sales," he said.