From the Bloomberg report....

---------------------------------------------


Microsoft Releases Xbox as Gates Fights PlayStation (Update5) Nov. 22 (Bloomberg) -- Microsoft Corp. released its Xbox 360 video-game console across the U.S., a machine Chairman Bill Gates says will let the company wrest control of the $28.5 billion industry from Sony Corp.

Microsoft, which spent more than $12 billion developing its Xbox machines, began selling the Xbox 360 in stores last night, in time for the holidays and before Sony's PlayStation 3. Those two advantages will give Microsoft ``the hottest product we've ever had,'' Gates said in a telephone interview yesterday.

``We see ourselves having a higher share,'' Gates, 50, said before his trip to a Bellevue, Washington, store for the Xbox release. ``We're not going to name some magic number but we're out to give the best gaming experience and hope to get a really high market share out of that.''

Microsoft, the biggest software maker and No. 2 in video-game systems, released its first machine after Sony's PlayStation 2 and failed to gain market share of more than 18 percent. Gates is betting the new model will help bring the Redmond, Washington- based company's software into the living room and lessen its dependence on Windows and Office programs for personal computers.

``Last time we were the new entrant, we didn't have credibility, we came in late,'' Gates said. ``Everyone agreed we had the better box. Here we think we have the better box but we're shipping first.''

San Diego-based DFC Intelligence says Microsoft may win as much as 40 percent market share. Sony has about 67 percent and Nintendo Co. has 15 percent. The global video-games industry is expected to expand to about $42 billion by 2010, up from $28.5 billion this year, according to DFC.

``The dynamics of the race have changed,'' said Mike Goodman, an analyst with Yankee Group in Boston.

Games Expansion

Microsoft used Boeing Co. 747 freight airplanes to rush the machines to the U.S. from factories in China, and Gates said demand will exceed supply for ``quite a while.'' The Xbox will go on sale in Europe on Dec. 2 and in Japan on Dec. 10. Sony's PlayStation 3 will be released next year.

More than 200 fans waited in the rain outside a Best Buy Co. store on New York's Fifth Avenue for a chance to go home with one of the first Xboxes in the country.

First in line was Peter Gonzalez, a 19-year-old college student, who waited more than 28 hours to buy his machine.

``It was freezing cold, the rain was horrible,'' said Gonzalez, dressed in a hooded black sweatshirt and torn jeans. He parted with $498.50 for an Xbox and Microsoft's ``Perfect Dark Zero'' shooting game.

He was joined by Michael Hamilton, a freelance writer from Brooklyn, who said he thought he was first until he met Gonzalez. The pair joined forces to coordinate food and bathroom runs.

One Race Lost

Gates appeared with Brad Anderson, chief executive officer of Richfield, Minnesota-based Best Buy, at a store in Bellevue and shook hands with some of the more than 400 people waiting outside. Inside the store, Gates settled into a leather chair and played ``PGR 3: Project Gotham Racing'' on a large-screen television against Isaias Formacio, 26. Gates lost.

``I'm not good at all,'' Gates said. ``By the third generation (of Xbox), I'll be good.''

The Xbox is available in two versions: a basic model for $299 and a $399 version with a hard drive and a wireless controller. The devices connect to digital cameras, portable music players and Windows PCs.

1,700 Parts

The Xbox 360 contains 1,700 parts and its release around the world in the space of three weeks leaves little room for error.

``For the last six months, we've been on the edge of our seats,'' Gates said in the interview. ``I hope I don't get an e- mail saying `Gosh, processor yields are too low, or this plastic factory burned down in Malaysia, so we'll have boxes but no controllers.'''

Manufacturers Flextronics International Ltd., Wistron Corp. and Celestica Inc. are building the machines.

``With software at least, the people who determine your fate all come to work here at Microsoft,'' Gates said.

Microsoft shares have fallen 16 percent over the past five years as sales of PCs slowed. The stock fell 16 cents to $28 at 11:37 a.m. in Nasdaq Stock Market composite trading and had risen 5.4 percent this year before today.

Gates is betting the Xbox, Microsoft's only unprofitable unit last year, will help bolster sales of the company's other products to consumers. The Xbox 360 will also be profitable over the life of the machine, unlike its predecessor, he said.

The Xbox is ``absolutely one of their key growth strategies,'' said Evan Wilson, an analyst at Pacific Crest Securities in Portland, Oregon. ``It's a Trojan horse to get a Microsoft product into the living room.''

A winner between Xbox and PlayStation may take two years to determine, Gates said.

``By the end of 2007, you'll have kind of a sense of how much did Microsoft increase its market share: dramatically, not so dramatically, did Sony mess up, what happened?'' Gates said.




To contact the reporters on this story:
Jonathan Thaw in San Francisco at jthaw@bloomberg.net;
Peter Robison in Bellevue, Washington at robison@bloomberg.net.
Last Updated: November 22, 2005 11:46 EST