Microsoft informed its Xbox parts suppliers not to expect any orders in the first half of 2003, so that existing console supplies could be depleted. It will alert the companies about second half orders sometime in the second quarter. One of Microsoft's key partners, NVIDIA, which makes the video controller in the Xbox, will likely suffer the most. The company will likely ship just 5 million video chipsets to Microsoft next year, down from its original forecast of 8 million units. NVIDIA and Microsoft are also in court over a disagreement regarding the price Microsoft is supposed to pay per unit for the video controllers. Currently, Microsoft represents about 10 percent of NVIDIA's business.The article mentions that Microsoft has been picking game developers in an attempt to make up the loss it takes on each Xbox console with higher game margins, which means there could be some truth to those Vivendi rumors.
Honestly, I can't help but wonder if perhaps there are better ways for Microsoft to sell more consoles and generate more revenue from the Xbox platform. It seems unlikely that Microsoft will ever support efforts to turn Xbox consoles into full-fledged PCs, but what giving the consoles some PVR functionality? Microsoft may be reluctant to have a PVR-enabled Xbox competing with its Media Center PCs, but that kind of functionality could help Microsoft generate more Xbox Live revenue for TV listings, TiVo-style.