Analysts lower forecasts for Microsoft earnings

Microsoft's much publicised and apparently continuing stock issues for the launch of its next-generation games console have resulted in a reduction in estimates for the company's latest earnings report.

The Xbox 360 was launched in the US in November, reaching three continents in as many weeks and failing to meet consumer demand in each region. Stock shortages for the first next-generation console to reach market continue to plague the Redmond giant, with major retailers in the US and Europe still struggling to fulfil launch day pre-orders - leaving thousands of potential customers disappointed.

The continued pressure to meet US and EU consumer demand, combined with less than impressive sales in Japan, has prompted UBS analyst Heather Bellini to reduce her predictions for quarterly Xbox 360 shipments from 1.5 million to 1.25 million. Additionally, Bellini estimates that Microsoft's Home and Entertainment division (housing all Xbox operations) will see a sales increase of just 21 per cent, as opposed to earlier forecasts of between 26 and 32 per cent.

A general downward turn in demand for PCs and the strength of the US dollar during the final quarter of 2005 are also predicted to have a significant impact on Microsoft's earnings, which are due to be released this week.

Speaking to Reuters, Buffalo Funds portfolio manager Bill Kornitzer stated: "By and large, we're not going to be hoping for great things from Microsoft, because Xbox wasn't a blow-out this year and it doesn't look like PCs were a blow-out."

Not everyone is quite as glum about the financial postings, though the general consensus does appear to be less than optimistic in terms of what was initially expected, and what is more likely following the launch issues and downturn in the demand for PCs.

Pacific Crest Securities analyst Brendan Barnicle commented: "There has been some weakness in Xbox and the currency has worked against Microsoft. I don't necessarily think that means it's going to miss earnings, but revenue could be on the lighter side."