The Perfect Plan For Destroying Microsoft

Francis Vale

The perfect Plan-X has just arrived for destroying Microsoft. All you have to do is purchase an Xbox -- not one, but several hundred million of them, please. The parts costs of the Xbox are estimated to be $330 according to a cost to build analysis done by EE Times. Their estimate does not take into account Xbox labor, overhead, marketing, etc. Altogether, that means Bill G. forks out about $400+ for each and every Xbox that goes out the Flextronics door, the subcontractor that manufactures them for Microsoft. Moreover, MS recently cut the Xbox’s retail price to $199 in response to the new $199 price in the U.S. for the Sony PlayStation 2. The dealer price for the Xbox game console is probably about $135-$160 or so, which means Bill has to reach into his wallet for $250 or more for every unit sold by Microsoft. At this ridiculous burn rate even that whopping $40 billion MS cash hoard will eventually whither. A few hundred million Xbox units and ka-boom! Hello, Enron Redux. In fact, published reports based on internal Microsoft estimates say that the company would lose $750m on the Xbox this fiscal year and $1.1b in the next fiscal year, ending June 2003. No wonder Bill recently filed his intent to sell 1 million shares of his MS stock.

Others in the Xbox Family and Friends Circle are also scurrying around trying to heal the financial hemorrhaging caused by MS marketing fun and games. Cirrus Logic (Nasdaq: CRUS), a company that makes Xbox components, made a dismal earnings announcement on June 25, 2002. Cirrus reported figures of $74 million to $77 million for the first quarter ending June 29th. Not good, especially considering that only in May Cirrus gave guidance of $87 to $88 million. Cirrus said the shortfall was due solely to lower demand by Thomson Multimedia, which manufactures the DVD subsystems used by Flextronics in building the Xbox. Cirrus concluded their announcement by stating they expect a loss per share of 6 to 10 cents for the September 2002 quarter. "While we are disappointed in the Xbox status, we are pleased to report that we expect double digit sequential growth in our business excluding Xbox," said David D. French, president and CEO of Cirrus Logic. Right, Dave. Add Cirrus Logic and Thomson Multimedia to your Xbox hit list every time you buy one of these Redmond Rash consoles.

And the news doesn’t get any better for Microsoft as no one seems to want to play on its new $1 billion cost to build Xbox Live gaming network. Electronic Arts, one of the biggest games publishers, said nyet to Xbox Live as the company apparently thinks having Microsoft controlling the gates to EA customers was equivalent to playing Death Wish III. EA went with the upcoming Sony gaming network instead. And the Xbox saga gets even crazier. French filmmaker Audrey Schebat has now filed suit in a Paris court against Microsoft and its London ad agency Bartle Bogle Hegarty, claiming that a TV commercial for Xbox was copied from her short film "Life." The British Independent Television Commission previously banned the ad from playing in the UK, which depicts a baby boy being shot from its mother’s womb, fast-forwarding through adult life and then slamming into his grave. This ad may ultimately turn out to be the perfect metaphor for the short and nasty life of the Xbox.

Meanwhile, you did know that Sony has announced an official Linux porting kit for their game console didn’t you? See The $200 Sony kit includes Linux system software for the PS2, a hard drive, a USB keyboard and mouse, plus an Ethernet network adapter to connect the game console to your home network or to the Internet. Also required, but not included in the kit, are a PlayStation 2 memory card and a VESA monitor that supports sync-on-green.. Two DVDs are part of the PS2 kit. One contains the PS2 runtime environment and a system manual in addition to the written manual. The second contains the Linux operating system, a Windows graphics synthesizer, and various device drivers, tools and sample code.

The Linux kit has been on sale in Japan for some time now and has proven to be very popular with the Open Source community over there. Better yet, all you folks merrily writing and porting home entertainment Linux apps to the Sony console have a great source of way below market cost PS2 expansion parts they can hack courtesy of Xbox. What a wonderful two-fer: nice parts cheap and it costs Bill billions to boot.

Sometimes life is good.

Francis Vale, Copyright 2002, All Rights Reserved

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