Maybe sales went down because Microsoft is replacing broken 360s instead of forcing customers to buy new ones. Just trying to look on the bright side.

This is a problem? It's not a month-to-month drop, it's a comparison between this quarter, and Q4 '06. 700K is probably lower than they would have liked, but did anyone expect 360 sales to stay up? Console sales always follow a sinusoidal curve - high at first, then dropping, then rising again due to a price drop or big release, then dropping again, then rising again... etc. With a price drop likely not far away, and the 360's big hits right around the corner, I'd say they're now "enjoying" the trough of this particular curve. There's every reason to believe that it will rise again, as console sales almost always do, and that this dip is simply the normal lifecycle of a device, rather than a response to any specific problem that MS has been having.

I think the NPD numbers tomorrow will be more telling. Fewer consoles shipped does indicate a lower demand, but it's not the same as sales. If you have a ton stockpiled, you ain't shipping more.

Yeah, exactly. Especially since MS was basically shipping way more than they could sell at the end of last year so they could say they'd met their target of x number of consoles shipped in 2006.

Agreed. Oh noes! Microsoft is not selling as much as before! The company is teh doomed!

Microsoft makes $50 billion per year. They see the Xbox as a 10 year strategy to basically dominate the game space the same way they dominate office, but offering developers tools a powerful set of hardware to compile against, and Microsoft's Marketing might.

What is one month +/- in that strategy? Nothing. Even the nearly $2 billion loss on the Entertainment division does not matter one bit. They have deep pockets, and the ability to pour money at the problem until they win.

And this is from a Linux guy.

I join you in waiting for the inevitable price break. Multiply that by a significant percentage of the 360 holdouts and that's a pretty huge chunk of sales gone until they take action.

I wonder if both MS and Sony are starting to reach the limit of the market of people willing to pay $299+ for a console, especially since even that gets you only a gimped version. The Wii's demonstrated that people are happy to hand over $250 for the full-featured version of a system. If MS can put out a version of the 360 that's ready to play Halo 3/Mass Effect/Assassin's Creed/etc. out of the box at that price, sales will go through the roof.

I've no doubt that demand will pick up again once the deluge of awesome games starts coming, particularly Halo 3. I think there are a lot of people who are waiting for that time (or the first price drop) before jumping on. I doubt the publicity around the defective units really had anything to do with this dip.

Semi-skimmer comment here since I didn't read the linked article, but how much of this drop might be attributable to the elite sales recently? I suspect that gave the sales numbers a boost when it came out.
EDIT
read the article... Elite is probably in the number. Minus the 1 billion charge on repairs, the margins are imporoving... Theyre well positioned for the upcoming quarters, though a price drop would still act like an adrenaline boost.
From another perspective, Microsoft is better positioned now to make a big % increase in the next report...

Someone said it before, ms is in it for the long haul.

Maybe their Home & Retail division let off the pressure on your Best Buys and your Wal-Marts for the "lean" months?

I'd really like to think the failure rate is behind the majority of the sales drop, but I'm skeptical. I mean, morons bought this untried technology on launch day in distressing numbers. Anecdotal evidence of high failure rates probably doesn't reach the ears of the soccer mometariat as often or as forcefully as "Mom, I gotta have [game X]".

Noone made a sucky product comment? FOR SHAME!

Ok:

That combo would really suck!

yep...lots of morons here.

I count myself lucky, as I run the flag up for "I didn't pay for mine". I did help a friend out by selling my balance of $245 for my 360 at EBGames to him.

Halo 2 pushed hardware sales, as did MGS2 for the PS2, Zelda for the N64, etc. GTA 3 was not a big release. It became a hit due to word of mouth, but it wasn't a game that the public was ravenous for - they'd never even heard of GTA.

You won't know unless you open it.

Weenah!