August 14, 2001 12:25 PM PDT

Microsoft denies Xbox glitch

Microsoft denied a report Tuesday of a flaw in the motherboard for the Xbox game console.

The software maker was reacting to a report from investment banking firm Thomas Weisel Partners, which stated that several sources across the Xbox manufacturing supply chain had confirmed the flaw. The glitch could delay manufacturing by a few weeks but not the Nov. 8 launch of the Xbox, analysts Eric Ross and David Readerman wrote in the report Tuesday morning.

A Microsoft representative, while declining to discuss specific production issues, said there were no flaws with the Xbox motherboard and the console is on schedule.

"There's absolutely no problem with the design of Intel's motherboard," Microsoft spokesman James Bernard said. "We're still on track for a Nov. 8 launch."

Intel designed the motherboard for the Xbox, but contract manufacturer Flextronics is building it, an Intel spokesman said. Flextronics also is assembling the final Xbox from components.

In their report, Ross and Readerman said it was unlikely that the production delay would affect the $299 device's launch because of the option of cranking up the current slack production schedule.

"I don't think it's going to delay the start date of Xbox, but they're certainly behind schedule," Ross told CNET News.com. "It's not uncommon in the PC hardware business to be able to make up for any production delays, and (the Xbox) essentially is a stripped-down, special-purpose PC."

The investment firm also noted that Microsoft management is holding fast to the company's plans to stock about 600,000 to 800,000 units at the launch and to its expectations of selling up to 1.5 million units by the end of the year.

Staying on track for the launch date is vital for Microsoft, which is pegging the sales on the holiday shopping season.

In addition, the Xbox is scheduled to arrive on store shelves a mere three days after Nintendo begins selling its new GameCube console for $199, making any potential Xbox delay even more significant for Microsoft.

"I think it's critical for them

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to meet that date, and they most likely will," Ross said. "They have a lot of time to make that up. The worst case in my mind is that they ship on time with fewer units."

The Xbox is the Redmond, Wash.-based company's high-profile bid to expand into the lucrative video game market, moving beyond its traditional PC base as sales of desktop and laptop computers decline. The software giant has said it will devote $500 million to marketing the console, which will also compete against market leader Sony's PlayStation 2.

The Xbox had already been plagued by reports of delays, which the company vehemently denies.

Last year, Sony was forced to push back the launch of its $299 PlayStation 2 in the United States and Europe because of delays in producing the graphics chip that would power the game console. The company originally promised 1 million units at launch, but component shortages forced it to reduce that figure to 500,000.

Microsoft executive have vowed the company will avoid the shortages and frustrated would-be customers that accompanied the PlayStation 2 launch. "We don't want to disappoint gamers," Ed Fries, vice president of games publishing at Microsoft, said at the Xbox's official unveiling in January.

 

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