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Console Production Shakeup - Interesting Read

Forums - Sales Discussion - Console Production Shakeup - Interesting Read

"The game console component supply chain may see some shaking up in the near future, with more partners expected to produce the Nintendo Wii, and Microsoft expected to adjust its supply chain amid the launch of its Xbox Elite, industry sources indicated. Sole reliance on Foxconn Precision Components (FPC) for assembly of the Wii appears to be insufficient to meet persistent strong sales of the game console, according to the sources. In order to guarantee smooth shipments, Nintendo is now looking for one more manufacturing partner, with Asustek Computer, Compal Electronics, Inventec and Wistron aggressively striving to land the partnership, the sources noted. ODM and OEM makers including Mitac International Corporation (MIC) and Quanta Computer, however, do not appear to be candidates. Among the mentioned players, Asustek and Wistron assemble the Sony PlayStation 3 (PS3) and Xbox 360, respectively. Asustek has accumulated revenues of NT$51.4 billion through February for its 3C goods. According to Nintendo's latest financial statement, the game console vendor had accumulated shipments of 3.19 million units through the end of 2006. For the first two months of this year, Nintendo has already shipped 771,000 Wii consoles in North America, compared with shipments of 522,000 for the Xbox 360 and 371,000 for the PS3, according to statistics from NPD Group. Other changes in the game console supply chain may be seen for the production of the Xbox 360. With the launch of Microsoft's Elite version, the company is preparing to reduce prices on other Xbox 360 models and has expressed its wish to reduce quotes from its three major assembling partners, namely, Celestica, Flextronics and Wistron. If any of these players seems disinclined to accept the lower quotes, there could be some shakeups in that supply chain as well." So I thought this was an interesting article, and thought it suited being a thread here as it will obviously effect sales. However, the section of this article that I find interesting is that Nintendo is in talks... or is trying to find someone to manufacture Wii's... I find that odd, if they were ramping up production capacity in April you would think that a deal like this would be long forged wouldn't you? Also interesting to see that Nintendo don't use their own factory for production of the units. Discuss :)



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They need to learn NPD is sellthough NOT total shipments. If only 371,000PS3s were shipped to NA in january/febuary, you would be hard-pressed to find one still.



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I think that's an understandable oversight, and I think we can understand that those numbers are 'purchased' numbers. They may very well be 'shipped' by Nintendo, perhaps it's safe to assume that they shipped 800,000? I think Sony and Microsoft definitely 'shipped' more units than that... the other details of the article are more important I think.



OriGin said: Other changes in the game console supply chain may be seen for the production of the Xbox 360. With the launch of Microsoft's Elite version, the company is preparing to reduce prices on other Xbox 360 models and has expressed its wish to reduce quotes from its three major assembling partners, namely, Celestica, Flextronics and Wistron. If any of these players seems disinclined to accept the lower quotes, there could be some shakeups in that supply chain as well."
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By the way, here is the source http://www.digitimes.com/news/a20070328PD220.html



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I always thought nintendo owned the manufacturing side of their business as well.... Oh well, how much more consoles per month will this equate to?



OriGin said: However, the section of this article that I find interesting is that Nintendo is in talks... or is trying to find someone to manufacture Wii's... I find that odd, if they were ramping up production capacity in April you would think that a deal like this would be long forged wouldn't you? Also interesting to see that Nintendo don't use their own factory for production of the units.
Thanks for the article. I know there have been reports about increasing capacity before, but this is the first time we've heard about another partner making Wiis. Just because Nintendo is looking for an additional supplier, it doesn't mean that Foxconn hasn't been able to increase supply. It's probably just not as much as Nintendo would like. (And a second supplier makes good business sense long term.)

The last time I heard a report, Nintendo was making over a million Wiis a month. At this rate, there will be over 18 million total by the end of 2007 -- the Gamecube sold only 22 million units over six years.

And it's not uncommon for companies to outsource production. Most of the laptops made these days are from contract manufacturers in Taiwan and China. Here's a great article on how Dell bucks this trend: http://news.com.com/Dell+bucks+the+notebook-outsourcing+trend/2100-1005_3-6134256.html



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Steve 3.2 said: Thanks for the article. I know there have been reports about increasing capacity before, but this is the first time we've heard about another partner making Wiis. Just because Nintendo is looking for an additional supplier, it doesn't mean that Foxconn hasn't been able to increase supply. It's probably just not as much as Nintendo would like. (And a second supplier makes good business sense long term.) The last time I heard a report, Nintendo was making over a million Wiis a month. At this rate, there will be over 18 million total -- the Gamecube sold only 22 million units over six years. And it's not uncommon for companies to outsource production. Most of the laptops made these days are from contract manufacturers in Taiwan and China. Here's a great article on how Dell bucks this trend: http://news.com.com/Dell+bucks+the+notebook-outsourcing+trend/2100-1005_3-6134256.html
I could be wrong, but I suspect that by having multiple manufacturers Nintendo puts themselves in a stronger position to ensure that their systems are being produced at the highest quality for the lowest price; if one manufacturer is producing them at too high of a price, or at too low of quality, Nintendo would have a lot more power to enforce their contract.



HappySqurriel said: I could be wrong, but I suspect that by having multiple manufacturers Nintendo puts themselves in a stronger position to ensure that their systems are being produced at the highest quality for the lowest price; if one manufacturer is producing them at too high of a price, or at too low of quality, Nintendo would have a lot more power to enforce their contract.
Maybe. But according to this article, the Wii's defect rate is 'minuscule'. So it's unlikely they're worried about quality. And we all know that they're making money on the system. In fact, adding another company could be more of a headache. Now you have to coordinate the operations of both with all of your parts suppliers, shippers, etc.



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None of the companies manufacture/assemble their own hardware - including Sony. It makes more financial sense to outsource stuff like this. You would only do these things in-house if outsourcing couldn't meet the demands for special components (such as the CELL cpu, etc). ... Interesting post. Remember that by the time these things hit the media (and are published), the actual "business" level conversations finished a couple of months ago. I'm sure Nintendo has signed a contract with one (or more) of the companies by now - maybe starting with a short-term contract to sort out quality and other issues before settling on final partners. Price (cost) is also always an issue. Fingers crossed we'll see the rewards from all this in the coming months... EDIT: now it comes down to tooling time (i.e. how long it takes to prep the assembly line to create/assemble the parts as needed).



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