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Microsoft’s Xbox is continuing to gain its popularity among consumers. According to reports, the supply of the console is exceeding expectations at the moment. While the extra demand means hardware suppliers will get additional orders from the world’s top software makers, game developers are likely to face declines in sales as a consequence of shortages for game consoles.

“Consumer demand is exceeding supply right now... we are working with partners to rectify the situation…We’re working really hard to satiate (consumers’) needs,” a Microsoft’s spokeswoman is reported to have said, according to Reuters.

Microsoft said that holiday sales of its Xbox console exceeded expectations during the last three months of 2004, and in January raised its sales forecast to a global installed base of 21 million to 22 million consoles by June, up from the previous projection of 20 million units. Microsoft’s outlook means increased sales of components for the machine for companies like Intel Corp., Foxconn, NVIDIA Corp. and Seagate who provide main components for the machine.

Meanwhile one of the world’s largest game publishers, Electronics Arts, said on Monday its quarterly earnings outlook would be weaker than expected because of shortages of game consoles that spur new game sales and lower than expected performance of old games. It is unclear whether Microsoft’s own revenues for games will be lower than expected because of consoles’ short-supplies.

According to Microsoft, Xbox business revenues were up 20% and profits up 11% in the last quarter of 2004, which was due to introduction of the Halo 2 game – the successor of the most-popular Xbox title. The Home and Entertainment unit posted sales of $1.41 billion and profit of $84 million, both were record for Microsoft. Still, the software giant will need to sustain operating profitability in the coming years, as the company needs to cover its $2 billion Xbox marketing efforts as well as the costs of hardware the company needed to compensate earlier.

Microsoft reiterated its forecast for Xbox console sales to a worldwide installed base of 21 million to 22 million in late January, 2005, a bit higher than previous estimate of 20 million units. Such update of the guidance reflects growing interest to the consoles in general, as Sony also recently said it expected the number of PlayStation 2 consoles shipped in its fiscal quarter ending in March Sony to be 15 million units, up from 14.5 million previously.

Microsoft is expected to commercially launch its Xbox 2 console in late-2005. With the next-generation console Microsoft’s approach to its console business will be different to the current.

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