Microsoft: 'We misjudged demand' for Xbox 360

Microsoft admitted Wednesday that it sales for its flagship Xbox 360 game console were in fact so strong that it hasn't been able to maintain inventory levels.

Redmond may be playing the expectations game as NPD data listing monthly console sales is due shortly, and may show some weakness due to these supply problems. Microsoft's game marketing chief Jeff Bell said it could have an impact on its sales.

"We're literally out of stock in many stores," Bell told Reuters. January and February numbers are expected to be affected most, but the company is ramping up production and will likely be able to meet demand by spring.

In December, Microsoft sold some 1.26 million units, one of its best months ever. The surge in sales allowed it to keep pace with Nintendo's Wii, which sold 1.35 million consoles during the same period.

The shortages also apparently are upsetting retailers, more of which find themselves "on allocation" -- meaning Microsoft is sending consoles to the locations where it is selling the best, while others may not be getting many consoles if at all.

Nintendo's Wii is expected to surpass Microsoft as the next-generation console with the largest installed base sometime this year, according to iSuppli. By the end of 2008, the Wii will have shipped 30.2 million units, surpassing the Xbox 360's install base of 25.7 million units, the firm projects.

Worse yet, the PlayStation 3 is expected to surpass Microsoft by 2011, reaching 38.4 million units. However, unlike the previous generation its market share could stay close to even, with the PS3 garnering a 35.4% share, Wii 34.8%, and Xbox 360 29.8%.

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