Lazard Capital Markets analyst Colin Sebastian has issued a research note in which he suggests the Xbox 360 may be underperforming, despite strong software sales and attach rates.
Sebastian claims in the note that “Xbox 360 sales appear to be tracking below current market expectations. 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.”
No specific reasons are suggested for the supposed underperformance, although the research note claims that the format no longer suffers from hardware stock problems and that “pent-up consumer demand has largely been fulfilled”. The note makes no reference to the console’s underperformance in Japan, where it is tracking considerably below the original Xbox, or to Europe – where a lack of reliable hardware sales data has traditionally made detailed analysis difficult.
On the market as a whole Sebastian is more positive, raising his 2006 software growth forecast for North America from 0 to 5 percent to expected growth of 6 percent. Ironically, the stronger than expected software sales are attributed primarily to an exceptionally strong 5.1 software-to-hardware tie ratio for the Xbox 360, as well as better than expected results for the Nintendo DS and PlayStation 2.
At the same time, hardware estimates are up for the Wii, Nintendo DS and PlayStation 2, but down for the Xbox 360, Xbox, GameCube, Game Boy Advance and PSP – resulting in a net decline in total hardware sales. However, Sebastian notes 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.”