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The original XBox was doing well market wise as 2003 and 2004 went along ... it was starting to in the US at least sell on par with the PS2 more and more regularly and Halo 2 was a big, big hit and it had broken Sony's exclusivity on Grand Theft Auto too.

But the design of the XBox and the deal they made with Nvidia was costing them to bleed a lot of money because those components had fixed prices (a rookie mistake by MS).