I generally agree with you ...

There are only so many people who have the money to buy an XBox 360 system, who are interested in videogames in general, and are interested in the XBox 360 in particular. Currently Microsoft are running low on people who meet these criteria and the only ways for it to continue selling is to:

• Increase the number of people who can afford the XBox 360 (either by giving them more money or reducing the price of the system)
• Get non-gamers interested in buying the XBox 360
• Or increase the number of gamers who are interested in buying the XBox 360 (typically through the release of major exclusive titles)

Now I do believe that Halo 3 and GTA 4 will provide major sales boosts but I think delaying the price drop could hurt the sales of these games and limit the userbase increase from the release of these games.

I prefer "the best explanation is the simplest explanation" for Occam's Razor, which is close enough to what you said (the fewest assumptions = the simplest most of the time).  So then which explanation requires the fewest assumptions, ie which is the simplest? 

Explanation  1) (mrstickball's)  MS planned to overstuff the retail channel as part to of a scheme to clear out inventory prior to retooling for 65nm and an upcoming $1billion waranty extension.  That assumes at least 3 things and doesn't answer one question by my quick count, 1) that suppliers are ready for 65 nm, 2) that MS knew when it would move to 65nm 7-10 months at least before it has, and 3) that MS knew 7-10 months ago about the warranty extension and it doesn't why that particular quarter was overstuffed instead of a more controlled draw down of inventories since apparently they knew all this some time ago.  Perhaps 65nm didn't come as quickly as expected, but then that would be another assumption.

Explanation 2) (mine) Human nature compelled MS managers to overstuff retail channels to meet their own boasts about breaking 10 million "sold" before the end of 2006.  That assumes one thing, that human nature intervened as it has so often to cause humans to make incredibly stupid long term moves for short term gains.  It also answers the big question of why the front loaded channel stuffing, they had to get 10 million out prior to Jan 1, 2007 to meet their boast thereby earning their bonuses.

The major difference between the two theories, besides number of assumptions/complexity, is that mrstickball's is a rational explanation for why MS would have done this.  My explanation is simply taking the easiest route (hence Occam's Razor) to explain why MS would have done what it did.  As such it reduces to one assumption about how humans actually behave, which is often irrationally.  You're right that we don't know what the intentions of the managers were but neither do we know whether MS is ready for 65nm or when they decided on the $1billion warranty extension.  That's why they are all assumptions.

Probably not, but stuffing the channels pretty well ensured a problem for the 1st quarter this year, but this still would give them time to recover, and the revelation would come at a relatively harmless period (something like this might do more damage at the end of the fiscal year, or at the holidays, where it could scare off potential buyers). In the end, the trick will likely cause a little more good than harm for the company.

I agree with what you're saying and I believe that MS stuffed the channel to reach 10m last year.

But Mr. Stickball has a valid point... MS knew that they were transitioning to 65nm in 2007. IBM announced their intent to transition their Power chips to 65nm last year (the architecture of the 360 CPU) and everybody knew about it. It's not an assumption to say that MS planned the move to the 65nm process... It is inevitable given the amount of money they save on each unit and IBM's research into the process.

The warranty issue really has absolutely nothing to do with MS wanting to clear inventory for 65nm process, they're doing that to save themselves money by opening the shipping channel to the new machines. The warranty is an entirely separate issue.

While it's true that MS shipped way too many systems last year, I honestly think that their projections included people giving up on buying a PS3 or Wii and picking up a 360 instead. Most consumers decided that if they couldn't get what they wanted, they weren't going to buy this 'substitute'.

I don't think the extra production has anything to do with the change over to cheaper/smaller chips. In fact, it wouldn't make much sense in the long term. MS overestimated, pushed those consoles onto retailers with the hopes that they would sell, and they didn't. (shrug)

lol, 60% sales plunge is only the start. 360 sales will probably get worst before they get better. That's only what MS deserve for making 360 hardware so cheaply.

MS was actually rewarded for rushing a console out. Their one year lead which is most important against the PS3  is paying off. Even though MS has made a defective console it has still sold well enough...

I agree that MS have given themselves an advantage by releasing the 360 12 months earlier than the other 2 consoles, but their sales this year are suffering because of the rushed product IMHO.  The 360 should be seeing better sales this year than they have been.  As I fully expect the PS3 to have much better sales next year than this year and most of us expect the PS3 to sell similar to what the 360 did in it's first 12 months with approx. 7m units sold by the end of the year.

There are 2 major problems for the 360.  The first is the RROD problem which as rumours are going are an inherent problem with the motherboard in all of the first 12m units produced and shipped (the number may be higher) and this will come to haunt them for the next few years yet.  The second problem is the price of the console.  IMHO, they should have reduced the price of the 360 well before now.  They have had the console on the market WW for around 20 months now without a pricecut.  If they cut the price 6 months ago, they could have had a much large user base by now.  They are now relying on Halo 3 and a pricecut sometime before Xmas to get the sales up, but at the moment, they will be overtaken by the Wii in the next month and are still only a "ball hair" over 10m units sold (god only knows how many of these include recalled and replaced units).  This is the magical number that they said would be sold within the first 12 months of the 360 being sold.

Entities should not be multiplied beyond necessity.

Microsoft didn't want any 360 shortages.
(I can't believe I am defending MS's business plan)

In case you don't understand the logic of that:
MS thought that if they flooded the market that they could sell to people who originally came to buy a Wii or PS3, which were sold out.

MS doesn't care to be #1, they want to make a profit, they see their business model as investing in future profits.

Another farcical experience of the 360 from Kotaku:

As of last night I have officially had nine Xbox 360s die on me, which means when I get this replacement, I will be on my eleventh Xbox 360 (counting debugs and retails).

Over the weekend we had a little neighborhood party at my house and in the midst of it I decided to show off Guitar Hero II for the Xbox 360. We played it for a bit, maybe 30 minutes and then I went to turn the 360 off and turn the music back on. When I pressed the power button on my Xbox 360 Elite it started making sounds like a blender. This lasted about 10 seconds and then it powered off. I found the news a little bizarre, but didn't think anything of it until Sunday night.

Last night I found a bit of free time on my hands and went down to the 360 to finally check out Vampire Rain (which should totally be better than Chocolate Rain). I turned the 360 on and popped the disc in. The console made a whirring noise for a second and that was it, just sat their displaying the Xbox 360 menu. I hopped over to the game blade and down to the place where it should say "Play Game". No dice. It just had an option to open the DVD tray. I tried a different game. I tried a DVD, No luck.

Then I hopped onto the Xbox 360 forums and discovered I had just become a member of the broken DVD playerRed Ring and one dead because of a bad DVD player. Microsoft really needs to get their shit together. As I pointed out to Peter Moore back when they announced the new warranty club. So that's eight dead because of a for the 360, warranty or no, customers are still going to be annoyed if their new or relatively new consoles keep dying. It's an inconvenience and certainly shakes confidence.

How many Xbox's do people need to go through?  See this is the main problem.  No matter whether they have a 3 year warranty or not, people are entitled to a working machine.  It surely won't be long before there is a major recall of 360's seeing as the new "supposedly fixed" models are only just starting to appear and there is probably still at least 2m dodgy units in circulation along the fact that they will have to cover 360's for the next 3 years...this problem could grow wings and whatever else.  MS have officially stated that there may be problems with up to 10% of the 360's produced whereas other reports seem to think that the motherboard is inherently screwed in the existing model (inclusive of the Elite model), so they could be covering repairs until the middle of 2010.

We also have to consider that the 360 could be well and truely out of the race by then....they could easily be in 3rd position and MS could be preparing to bring out the 720 or whatever they want to call it...yet they are linked with having to repair and replace 360's until the middle of 2010.

I can see big problems on the horizon for MS.