Microsoft cooking 360 figures?

Source: The blog of Roger Ehrenberg, president and COO of investment analyst service Monitor110, as picked up by Kotaku, Wired, and others. What we heard: The Ehrenberg blog post roundly condemns Microsoft for "channel stuffing," a shady process by which companies can meet their stated shipment...

Source: The blog of Roger Ehrenberg, president and COO of investment analyst service Monitor110, as picked up by Kotaku, Wired, and others.

What we heard: The Ehrenberg blog post roundly condemns Microsoft for "channel stuffing," a shady process by which companies can meet their stated shipment goals by sending unwanted inventory into the retail channel just before the end of a fiscal period. The company gets to say it met its targets, but the stuffing can come back to bite it later. Eventually those goods could be returned to the manufacturer or retailers might reduce future orders until they've worked their way through their existing backlog of merchandise.

Ehrenberg bases his accusation of channel stuffing primarily on postings from another financial blog, the Apple-focused Blackfriars' Marketing. The first post was made last December, and questions Microsoft's ability to hit its publicly stated target of selling 10 million Xbox 360s by the end of 2006.

The Blackfriars writer notes that Microsoft counts systems sent to retail as not just shipped but actually sold. It then crunches some numbers (and apparently confuses worldwide figures with the NPD Group's US-only numbers at one point) and concludes that Microsoft could have hit its goal for the year, but only by stuffing the retail channel. He follows that up by implying that Microsoft threatened to withhold copies of its Vista operating system--released in January--from retailers who didn't play along and choke down excess Xbox 360 inventory.

The second Blackfriars post is from late January, right after Microsoft downgraded its sales projections for the Xbox 360 from 13-15 million systems by the end of June to 12 million. The Blackfriars writer views the downgraded guidance as confirmation that the publisher was indeed channel stuffing at the end of 2006.

"Strong companies confident in their strategy and performance don't do these things," Ehrenberg wrote. "They don't have to. What kind of a message does this type of behavior send to the investor community and, more importantly, your customers? Weakness. Fear. Short-term thinking. Nothing that represents a positive signal for a better, brighter tomorrow."

While Ehrenberg paints a pretty bleak picture, a handful of analysts GameSpot contacted about the story disagreed.

"Microsoft sold-in 10.4 million 360's by December 31," noted Pacific Crest Securities' Evan Wilson. "It seems very unlikely that Microsoft stuffed the channel to beat their 10 million forecast."

Wedbush Morgan Securities' Michael Pachter was similarly skeptical. "It's possible that Microsoft has shipped a few hundred thousand consoles more than retailers want, but not possible that it shipped millions," Pachter told GameSpot, adding, "Microsoft would never stuff the channel to make numbers look better. I really don't buy this at all."

Lazard Capital Markets' Colin Sebastian called it "old news," but not what he would characterize as channel stuffing. "Microsoft's guidance for Xbox shipments during the first half of 2007 disappointed some investors, but the reality is they already had enough units in the channel to fulfill much of the demand," he said.

Nollenberger Capital Partners' Todd Greenwald said Ehrenberg's issue with Microsoft was legitimate, but also old news.

"Sure Microsoft probably over-shipped the channel," Greenwald said," but we knew that three months ago... To me, and most of Wall Street, it was pretty clear what Microsoft had done. And Sony's done the same thing. Nintendo's the only one who isn't doing it, but that's not to say they won't do it again in the future."

Greenwald also pointed out that it's different for a hardware vendor to stuff the channel than a software publisher because systems have a much longer shelf-life and will eventually sell. On the other hand, Greenwald said if software doesn't move in the first month, excess inventory will quickly suffer price cuts and returns.

When contacted by GameSpot, Ehrenberg himself confirmed that his blog was intended to take what was considered old news in the gaming world to a wider investment audience that might not have heard it before.

The official story: Microsoft did not "stuff the channel" with Xbox 360s to meet our sales numbers. Retailers had built a healthy inventory position last quarter to support sales during the holiday, and also for this quarter to accommodate holiday gift card redemptions.

Bogus or not bogus?: Bogus that this is a big deal. Companies play semantics with "units shipped" and "units sold" all the time, we essentially knew about this months ago, and one man's channel stuffing is another man's slower-than-expected holiday sales season.

Got a news tip or want to contact us directly? Email news@gamespot.com

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100 comments
player_leo
player_leo

Wasn't Sony accused of doing when the PS3 first lunched and the CEO or something was going around saying that they sold out at every retailer, only to have a dude call like 3 stores and they say they still have plenty in stock during an interview.

world69star69
world69star69

smoothn00dle posts Posted Apr 17, 2007 6:56 am ET One thing I spot on this forum. If is M$ negative news, Gamespot will try to put a positive sound on it. I read this news last week on google news. Four articles on this topic, overwhelmingly report this bad especially on TeamBox forum. It is serious because of this event, M$ have to lower this year sale expectation from 13 to 15 million down to 12 million. Past four years, I have followed console companies, include Sony never lower their sale expectation a million stock. This is the first in console history. ----------------------------------------------------------------------------------------- Since Greg Kasavin resigned Gamespot, Gamespot news standard just falling. The way Gamespot handle this news was poor and bias. Bogas and Old news?? It is not Bogas! I think SFC is looking this channel stuffing and M$ Vista threat to retailers right now. M$ creditability is on the line. I felt the same about Gamespot. -------------------------------------------------------------------- I totally agree with you there! The bias has been astounding on GS, but also on G4, and gametrailers, it makes me think that m$ pays these sites! Which wouldn't surprise me one bit seeing how they pay off developers! Gametrailers is the most biased though!

blind59
blind59

there really is no point in channel stuffing really. It just numbers that look good for your company, but i guess it could help i wouldn't want to buy something that no one else was buying.

maverick_76
maverick_76

That seems like sound business practice to me, its not very smart in the long run but who cares when the product life is only a few years. Microsoft is using it clout to achieve dominant market share, I really don't see a problem with it.

Stoneys_Rock
Stoneys_Rock

Actually not that I care either way, Nintendo has been fined a few times due to price fixing.

derekscorp
derekscorp

Actually, Miiguel, Nintendo is the leader, both in the US and internationally. I know the gaming community likes to ignore that because the Wii isn't HD, but at least Nintendo forged it's success honestly, by making a fun and easy-to-use system. Don't get me wrong, the Wii's graphics are pretty bad, and I do have a 360, but Microsoft is shady and always has been. This report is nothing new for them.

mcxps3
mcxps3

of cousre gamespot downplays it its owned by microsoft i dont trust them thats why i go with te 2 japnes ninja companies for my gaming.

whiplash
whiplash

Just more corporate antics... all three of the hardware companies have been guilty of it at one time or another.

Sepincourt
Sepincourt

bigpimppapa - It's likely that more people with broken 360's would take the time to complain about it, while those who haven't wouldn't care about filling in the form and wouldn't worry about looking at the link. So don't take those figures to seriously. It's like doing a survey on where people like to shop while standing out the front of walmart. That being said, I can say a lot of them seem to have had problems, mine did, but it'd really bother me. On to the figure cooking, I think everyone would do it, it's called marketing, make the product seem more popular then it really is. Also I think it said somewhere the story came from an "Apple-focused" group so it's also very likely they may be slightly biased. Also I don't see it as a huge deal, figure sold and figure shipped will remain similar anyway, plus they wont be able to ship more unless the originals are sold, so the figures wont go up until the numbers reached anyway.

bigpimppapa
bigpimppapa

[This message was deleted at the request of a moderator or administrator]

miiiguel
miiiguel

Everybody likes to bite the leader. Why don't we just play them darn machine, it's the best thing that happened to us, video-gamers enthusiasts, since PS2. The machine is awsome! Nuff said!

smoothn00dle
smoothn00dle

@cjnwo4life In this case, they don't discount and sale it. They return it to M$.

smoothn00dle
smoothn00dle

One thing I spot on this forum. If is M$ negative news, Gamespot will try to put a positive sound on it. I read this news last week on google news. Four articles on this topic, overwhelmingly report this bad especially on TeamBox forum. It is serious because of this event, M$ have to lower this year sale expectation from 13 to 15 million down to 12 million. Past four years, I have followed console companies, include Sony never lower their sale expectation a million stock. This is the first in console history. ----------------------------------------------------------------------------------------- Since Greg Kasavin resigned Gamespot, Gamespot news standard just falling. The way Gamespot handle this news was poor and bias. Bogas and Old news?? It is not Bogas! I think SFC is looking this channel stuffing and M$ Vista threat to retailers right now. M$ creditability is on the line. I felt the same about Gamespot.

Evan4prez
Evan4prez

@Chinolee: "Perhaps the moderators should turn their editing skills on to the article itself, because sentences like "Bogus that this is a big deal" are an offence to English grammar. Is that a double negative? God knows, its nonsensical anyhow." What are the two negatives? Seriously do not preach grammar if you do not know what you are talking about. "Bogus" is not a negative, and my only other guess is that you thought "big" was the other one. There are no negatives in that sentence whatsoever. If they said: "This is not bogus that it is not a big deal" you would have your double negative. This is a gaming website based in the US, and by your spelling of "offence" it is clear you are British. Please realize there are some significant differences in grammar, punctuation, and spelling between British based English and US based English. You can understand what they are saying (I hope) and do expect discrepancies between what you know and what others know. "Bogus it is a big deal" is not a serious grammatical offense. It may not be the most thought provoking sentence in the world but it is acceptable. If you have come to GameSpot looking for a deeper meaning in language, you will be sorely disappointed. I am sorry for my "flaming" and/or "ranting" but I get seriously annoyed by people who post about grammar when there is absolutely no reason to.

Zigmond1
Zigmond1

that was way to long to read also people you dont have to write f***ing essays

ebonyflame
ebonyflame

I was consfident about the numbers they always stated but now I am in serious doubt. But I had been saying faithfully for months now that this is what Sony had been doing with the PSP. I can see that with my own eyes as every store I ever pass both in the US and now in Japan has a serious backlog of PSP's that never get sold.

Toys_R_us_cop
Toys_R_us_cop

Uhhhh.... Id count my systems sent to a bussiness sold.....this guys an apple lover

zsc4
zsc4

Meh...So what..

StumpyTrash
StumpyTrash

I found it rather odd that this link didn't work for 2 days after the story was posted...

adam2987
adam2987

[This message was deleted at the request of a moderator or administrator]

waleywu_basic
waleywu_basic

I actually like what Microsoft's doing, I mean, if you can fool people into believing there are actually enough Xbox out there to worth breaking the exclusivity of PS3.. Sure, most gamers aren't stupid enough to buy it, maybe Capcom might? ;)

dynomitemasta
dynomitemasta

Sony's been doing this for a while as well, who cares.

ryanduvall
ryanduvall

to ChiefHunter1: On vista there is spell check! but vista does suck....

ldonyo
ldonyo

Technically, units shipped to a distributor or retailer have been sold. That doesn't mean that they will not be returned later and credit given back to the retailer or distributor. Sony has issues of its own, starting with the 20GB PS3 that no one wants.

thekey
thekey

I think people are going to br SHOCKED when M$ anounces there sales figures next year.

thekey
thekey

Its BS. I think just the opossite I think M$ is sheilding there actaul numbers.(Which I think ARE BETTER THEN PEOPLE THINK THEY ARE.) I think people are just hoping that the 360 fails, and gets beat by the PS3. Well this gen its NOT GOING TO HAPPEN!

sieg6529
sieg6529

This is business. It has never been, nor will it ever be, fair or nice.

scruffybawls
scruffybawls

to those of yall who think nintendo is high and mighty, need i remind you the japanese company practiced "dumping" back in the days of the NES by taking huge losses by selling for less, while forcing retailers to only carry their product. that was highly illegal and never publicised. so get off nintendo's d**k and realize that all corporations do this, just because one corporation sells you a fairy tale about some gay elf doesnt mean they aren't evil. and microsoft and sony suck too, im not a fan boy, im a depressed pessimist

DredWulf
DredWulf

well MS has flatly refused it and I don't buy that they have stuffed the channels.

Pudgieluv
Pudgieluv

Figures.. microsoft is afraid that sony and nintendo will catch them so the fudge there stats ... Microsoft is corrupt we know this...lol

chubear700
chubear700

Wow the ignorance of it all. If the word mircosoft was replaced with Sony all you guys tring to not make a big deal of this would have been on a flaming rampage and this board would be filled to the brim with "tsk, tsk here we go again, Sony is the devil and is dead; die! die! die Sony! yada, yada, yada" lol. As for me I fully believe MS is very capable of cooking their figures and have cause it does sound like a very microsoft thing to do.

blacktorn
blacktorn

"Microsoft threatened to withhold copies of its Vista operating system--released in January--from retailers who didn't play along and choke down excess Xbox 360 inventory." lol even if it isn't true....lol :P

TTDog
TTDog

@bloodyrooster; nextgenwars figures aren't the most accurate, if you check the graph you get dips on sales lines where the number sold drops by 1000's at a time, and the figures themselves are totally based on sales data. It may have the market share done fairly accurate but the sales figures are at best a guide. @ChiefHunter1; the spell check is pretty irrelevant dependant on where you live, there are plenty of different spelling between US English and the Proper Queens English used in the UK.

ChiefHunter1
ChiefHunter1

SirNicoli, GS mentioned in the article that Sony has also possibly done the same thing as MS but they didn't make a whole article out of it even though they could have. So stop complaining about this site's bias!!! Im so sick of the damn dumb fanboys who complain about everything!

ChiefHunter1
ChiefHunter1

This article couldn't be viewed by some people over the past week (myself included) so it was reposted. And as to GS posting this article that may not be valid - This is under RUMOR control, it doesn't have to be factual!

SirNicoli
SirNicoli

if this was a sony article gamespot would be going nuts on them

ChiefHunter1
ChiefHunter1

Every company does this to some extent although I personally think that the figures of millions of hardware may be exaggerated. BTW: if you misspell something on these posts it shows how ignorant you are since there is a spell check!

konradak
konradak

Why is this back up again?

Somini
Somini

I don't understand, why have GS posted these news twice? It was on here at the end of last week as well, strange indeed.

bloodyrooster
bloodyrooster

I'm sorry gamespot, but this is a big deal. When you put articles up that don't show the truth to the readers that's messed up. I didn't really see other great gaming sites blasting away on fake xbox sales like this one. Say your sorry, we'll forgive you, check the vailidy of your articles before posting them.

bam226
bam226

Of course gamespot denies it, cause its Microsoft. Their savior, and shame on u if you beleive it. lol!!!!! Now if it wuz Sony.......hmmp. need i say more. Lets keep it UNBIASED gamespot, stop showing your true colors each time stories like this pop up.

bloodyrooster
bloodyrooster

I stated that they were lying when they anounced that they sold over 10 million. They wanted to hit 10 million, because it's a nice solid number to shout about, of course they aren't going to release articles that say that they failed to meet these numbers, that would have been embarassing. I like my Xbox, but the numbers microsoft was saying compared to whats on nextgenwars were very different. Microsoft hit 10 million SALES about a month ago.

ArchangelMRN
ArchangelMRN

Hey I have idea MAYBE ITS BECAUSE MICROSOFT IS THE WORLDS LEADING TECHNOLOGY COMPANY, way ahead of second rate sony and doesnt care much about a few million 360 sales when it sells 100 of millions of dollars in software and other technologies everyday.

ArchangelMRN
ArchangelMRN

Hey I have idea MAYBE ITS BECAUSE MICROSOFT IS THE WORLDS LEADING TECHNOLOGY COMPANY, way ahead of second rate sony and doesnt care much about a few million 360 sales when it sells 100 of millions of dollars in software and other technologies everyday.