On Hardware Defects, Microsoft Should Meet the Apple Standard (MSFT, AAPL, SNE)

Includes: AAPL, MSFT, SNE
by: Yankee Group

By Carl Howe

According to Joystiq, Microsoft says that only 3% of Xbox 360s are defective. They further claim this is below the industry average. The article then quotes an analyst saying that Microsoft has sold 300,000 to 400,000 units.

Our take is that the number is closer to 300,000 so far, with another 300,000 for Europe to come, and another 250,000 or so for Japan. While further production will resupply stores in the US this month, I'm not counting on a lot more stock until post Christmas, meaning that about 850,000 units will be sold this year.

Regarding the three percent number being lower than the industry average, the question is "what industry average?" The industry average for consumer electronics? If that's the benchmark, I doubt it to be true. When was the last time you bought a DVD player or TV that didn't work? Probably a while ago. My estimate is that Microsoft is comparing the XBox 360 defect rate to PC defect rates, which are much higher.

But if Microsoft intends to be a world class manufacturer, compare the XBox defect rate with Apple's. According to one of the consumer electronics vendors Blackfriars has worked with, Apple's total return rate (including defective machines) is less than one percent. This just shows that the standards for excellence in software and hardware products are pretty different, and that Microsoft still has some things to learn in the hardware business.

The big question: Will Sony's defect rate for Playstation 3's be better or worse than three percent? Our bet, knowing Sony's culture: better -- by a lot.


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