Microsoft steps into games arena as Xbox goes on sale

The battle for control of the $20 billion (€22.65 billion) video games market intensified yesterday with the worldwide launch of Microsoft's Xbox console in New York city. The US software giant will spend $500 million marketing the Xbox, which is Microsoft's first foray into the hardware market.

The console, which costs $299 in the US, will offer gamers faster computer chips, more memory and an internet connection. It will be introduced in the Republic on March 14th, with the console priced at €479 and games costing about €69 each.

Microsoft's Xbox will compete directly against Sony's Playstation II (PS2) and a new Nintendo console called GameCube, which will be launched next Sunday.

Microsoft initially said it would ship 600,000 units but it is now expected to have about 300,000 units on day one, and between one million and 1.5 million by year-end.

Nintendo will have 700,000 units at launch and 1.1 million by year-end, although some analysts say the Japanese company might ship as many as 200,000 extra in a bid to keep up with demand.

Sony is not doing more than usual to sell the PS2 and has held the line against calls for a discount to its $299 price tag. Microsoft and Nintendo, meanwhile, have unleashed marketing blitzes. Even so, retailers appear to be backing Sony rather than risking much on the two newcomers.

A survey of 25 top speciality toy and video game retailers ranked PS2 as most likely to be the best-selling console this holiday season, and Konami's Metal Gear Solid 2 as the best-selling game. Two GameCube titles made the top 10 game list; none of the 30 Xbox games expected this year made the top 10.

Many analysts believe Microsoft's entry into the games market is fraught with risk and could result in huge losses. Morgan Stanley analyst Ms Mary Meeker said last week that Microsoft could lose $1 billion on Xbox by fiscal 2004 before breaking even, and the company has said it will look to make up any losses on the box with high-margin game software.

Contract manufacturer Flextronics, which has an operation in the Republic, is building the Xbox for Microsoft and some analysts estimate the contract could be worth more than $1 billion a year. Analysts estimate Flextronics is being paid about $375 for each Xbox it makes, meaning a $76 loss for Microsoft at the cash register. -(Additional reporting Reuters)