said Wednesday that weekly Xbox sales in Europe are now running neck and neck with
PlayStation 2, helping to boost shares amid a market rally. But on closer inspection, the news wasn't as glowing as the software giant suggested.
Microsoft declined to release specific sales figures but said that since it cut Xbox's price in Europe to 299 euros from 479 euros April 26, its console had caught up to PlayStation sales.
On the same day last month that Microsoft announced its plans to cut prices in Europe, the Redmond, Wash., company acknowledged that Xbox was selling more slowly than initially expected. At that time, Microsoft backtracked from its initial goal of selling between 4.5 million and 6 million Xbox game consoles worldwide by the end of June, reducing that range to only 3.5 million to 4 million.
While the price cut is apparently spurring sales in Europe, it also means Microsoft will lose even more money on each console sold. The common wisdom before the company cut its price was that it loses more than $100 on each console sold. But the company hopes to make up for that by selling software -- in this case, games -- to run on the consoles.
Mike Wallace, an analyst at UBS Warburg who covers U.S. video-game makers, said he wasn't surprised Microsoft sales caught up to PlayStation 2 in Europe. "It was a huge mistake to price the machine so high to begin with," Wallace said. "They did it because Sony did it, but when Sony did it, there was no competition."
PlayStation 2 launched in Europe in November 2000. Although that is 18 months ago, Microsoft matching Sony sales is an accomplishment given that such fewer games are available on Xbox, Wallace said. But you can't assume Xbox will stay on par with Sony, he added.
And Microsoft still has a long way to go to catch up to the more than 7 million PlayStations sold in Europe and more than 30 million sold worldwide to date.
When Nintendo's GameCube launched May 3 in Europe, its sales also surpassed those of Xbox because there was so much pent-up demand and Nintendo boasts a strong roster of game titles, Wallace said. "The real question is who is going to be No. 2 -- Microsoft or Nintendo," he said.
Gaming analysts are expecting even more price cutting in the North American market. Wallace believes Microsoft will cut Xbox prices in North America to $199 from $299 at the annual Electronic Entertainment Expo trade show May 22. He expects Sony to do the same either at the conference or shortly after, and Nintendo to follow with a cut in GameCube's price to $149 from $199 by fall.
Shares of Microsoft surged $5.50, or 11.1%, to close at $54.97 Wednesday. In after-hours trading, shares fell to $54.76.