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More Xbox Details Expected at E3

Microsoft Corp. is expected to reveal more information -- including an availability date and pricing -- about its upcoming Xbox game console at the E3 Game Expo in Los Angeles Wednesday.

Watchers of the software behemoth are awaiting information with bated breath. The Xbox is one of the company's first forays into hardware, and it is a bit of a gamble for the company as each console shipped is expected to lose the company money. But makers of game consoles these days see the machines as more than just boxes that use flickering lights to turn kids into zombies -- the companies envision consoles that are the central hub of families' entertainment systems.

That was the vision behind Sony Computer Entertainment Inc.'s Sony PlayStation2, which not only runs games and plays music CDs, it also doubles as a DVD-Player. And an add-on modem can turn the device into an Internet appliance for surfing the Web or playing games online. Users can even buy a keyboard and mouse to use with the console.

Sony rival, Sega, was headed in the same direction. It outfitted its first-to-market Dreamcast with a modem and was the first to build out a networked gaming arena, SegaNet. But the economic realities of the console market -- companies typically lose money on each console and make up the difference in royalties and selling their own games -- apparently drove Sega out of the console market. In January, it said it would restructure with a three-pronged strategy: it would become a platform-agnostic third party videogame publisher for game consoles, focus on SegaNet, and become an architecture provider of its Dreamcast chip-set technology. It announced plans to license its technology to Pace Micro Technology, which intends to manufacture a Dreamcast-compatible set-top box of its own, and bring Sega games to Palm handheld computers and Java-enabled Motorola phones.

Meanwhile, Microsoft is aiming to take over the space vacated by Sega and take on Sony. It has deeper pockets than Sega, and its Xbox will hit the market with the most advanced technology in the industry. It will feature an Intel 733 MHz processor, nVidia 250 MHz graphics processor, 64 MB RAM, DVD-ROM, a 10 GB hard drive and broadband connectivity. In contrast, the PlayStation2 features a 300 MHz processor, 150 MHz graphics processor, 32 MB RAM and DVD-ROM.

Still, Sony has an advantage over Microsoft in the area: history. Sony has a larger installed user base, and a much larger selection of games -- the real currency of the game console arena. Indeed, PlayStation2 is backwards compatible. It is capable of playing original PlayStation games, making its list of game titles years deep.

"...the Xbox will likely have a dozen or so game titles at product launch with 50 or more expected within several months of the product launch," Goldman Sachs & Co. said in research.

GS said it expects Microsoft's Xbox to hit store shelves in early November, and predicted the company will sell roughly 1-2 million units of the Xbox for Christmas 2001. It also expects Microsoft to sell 5-10 million units in 2002.

"Microsoft has indicated previously that it plans to launch Xbox in Japan and the U.S. for Christmas 2001 and Europe in Spring 2002," GS said.

GS acknowledged that the company will likely lose money on every console shipped, but said that should be somewhat offset by royalties from game developers.

"We expect Microsoft to record revenues on a gross basis, with cost of sales exceeding revenues during the first year of product availability," GS said. "This could depress operating margins 2-3 percent depending on the volumes and mitigating factors such as game revenues/royalties and cost cutting efforts in other parts of its business. We have assumed a rather late introduction of early November and relatively low initial volume of 1-2 million units in the December quarter. While somewhat negative for earnings, we believe the product launch likely following a few weeks behind Windows XP will be a positive event for investor sentiment."

Microsoft has indicated that it will spend $500 million marketing, promoting and launching the Xbox in its first 18 months.



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