Microsoft Nears Xbox Equilibrium

The company's financial chief says the game-console shortage is nearly over.
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PHOENIX -- With Xbox 360s as scarce as truffles, Microsoft (MSFT) - Get Report CFO Christopher Liddell has good news for game fans -- and the software giant's legions of investors: Supply and demand should be in balance in the next few months.

Speaking at the Goldman Sachs technology investment conference here, Liddell remains confident that the shortage is nearly over and the company will hit its target of 4.5 million to 5 million boxes out the door by the end of the year.

Liddell also said "he's very comfortable" with Microsoft's ambitious schedule of launching new versions of Windows and Office by the end of the year. But sounding a note of caution, he warned investors not to expect too much too soon from the parade of new products. "There won't be a huge pop (in sales)" initially, he said.

His warning seemed timely, because the market has been waiting for Microsoft's stock to break out of its relatively narrow range for years, and some analysts seem to expect a move fairly soon.

Shares of Microsoft were recently up 48 cents, or 1.8%, to $27.11.

Liddell also poured a bit of cold water on hopes that Microsoft will move much faster to distribute cash to shareholders. "I'm not a fan of special dividends," he said. "If I had to prioritize, share buybacks would be first."

That answer didn't sit well with the director of a large asset management company who questioned Liddell from the floor (and was thus anonymous under conference ground rules.) "Microsoft is still overcapitalized," he said. "And that's why the stock hasn't moved," he said.

He added that investors don't want to see Microsoft embark on a series of acquisitions. "The market fears that Microsoft will throw a lot of money to buy media or Internet-related companies. "We're strongly opposed," he said.

Although software on demand and software as a service are two hot topics at this gathering of some 800 investors, executives and analysts, Liddell indicated that talk of converting Office to a Web-based service is premature, at the least. "It's theoretically possible; we're keeping our options open," he said. But demand would have to come from customers, and so far, he said, that demand has not materialized.

The Xbox 360 is Microsoft's second attempt to crack the video-game console market. Its predecessor was the original Xbox, which launched a year after

Sony's

(SNE) - Get Report

PlayStation 2 and was never able to make up the lost ground. Sony has sold more than 90 million PlayStation 2's worldwide, compared with fewer than 30 million Xboxes. And while Sony's games division has seen healthy profits for years, Microsoft has lost billions thus far on its Xbox effort.

With the Xbox 360, Microsoft hoped to learn from its mistakes. The company

debuted the new console last November in a conscious effort to introduce the new machine well ahead of Sony's PlayStation 3, which

isn't expected until sometime later this year.

But many analysts believe Microsoft might have lost a critical window of opportunity this past holiday season. Although the company had the only next-generation game console on the market, shipments of the Xbox 360 were far behind demand in North America. In the U.S., for instance, market research firm NPD Group

estimated that barely more than 600,000 units made their way into consumers' hands by the end of last year, which was far fewer than analysts had originally hoped.

Senior writer Troy Wolverton contributed to this story.