http://biz.gamedaily.com/features.asp?article_id=9533&section=feature&email=Analyst: Current Gen Ends with PS3 Launch, Not Xbox 360Wedbush Morgan Securities' interactive entertainment industry analystMichael Pachter recently mentioned that he believes the current generationwon't really end until Sony launches the PS3. We discuss this with him aswell as the impact the expected Xbox 360 launch will have this year.In his Interactive Entertainment Industry Earnings Preview for the currentcalendar year, Wedbush Morgan Securities analyst Michael Pachter made someinteresting comments regarding the current console life cycle and how theupcoming next-gen consoles will affect the market. Sales growth to start with PS3According to Pachter, the introduction of the Xbox 360 by Microsoft will nothave as great an impact as one might think. He believes that the launch ofthe next-gen PlayStation sometime in 2006 will be the true end of thecurrent console cycle. "With an expected late 2005 launch date for the Xbox360, we have seen selling pressure for the publishers, as many investorsperceive the first next generation console launch as the 'end' of thecurrent console cycle. In our view, the current cycle will continue longpast the launch of the Xbox 360, and we do not view that Microsoft's pendingannouncement will have significant near-term impact on the U.S. publishers,"he said.He added, "We think that many investors have misinterpreted the launch ofthe Xbox 360 as the beginning of the next generation, and expect rapid salesgrowth in 2006. In contrast, we expect the launch of Sony's PS3 (expected inlate 2006) to mark the beginning of the next cycle, and think that rapidsales growth will not materialize until 2007."      [ "I think... in 2010, Sony's going to have 55%, Microsoft's going tohave 35% and Nintendo 10%, with all three of those having +/- 5%," MichaelPachter, Wedbush Morgan on next-gen market share ]Pachter clarified his position with GameDAILY BIZ. He said that some mediaoutlets took his statements to mean that Xbox 360 doesn't mark the beginningof the next generation, but he admitted that he probably wasn't as artfulwith his report as he intended. "I guess the first one to launch is thebeginning of the cycle," he told us. "It's just that most people think thatthe first one to launch marks the end of the current cycle and the beginningof the transition. I actually don't think the Xbox 360 launching is anydifferent than the PSP launching. It's not going to cause PS2 owners to buyless software." First out of the gateMany in the industry have questioned Microsoft's timing. Is launching anext-gen console later this year too soon? Will their coming out firststrategy backfire? Pachter doesn't foresee a problem, though. "If the [Xbox360 and PS3] launch side-by-side then I think Microsoft would have 30%penetration, Sony would have 50-55% and Nintendo would have 15-20%. IfMicrosoft launches first, they're going to get sales for a year 'for free.'So, if they get 30% market from the day of the PS3 launch on plus whateverthey sell the first year, they're going to do better than 30%," he explainedto GameDAILY BIZ.Pachter believes that purchasers of the Xbox 360 this year will largelyconsist of hardcore gamers that own multiple consoles and current Xboxowners that want to upgrade. "I think [Microsoft] is doing the right thing.It's just that I think the impact on current consumer behavior is limited to30% of all consumers. Among pure PS2 owners (not those who own an Xbox andPS2), no one is sitting around saying, 'Oooh I can't wait for the Xbox 360!'... 35% of the existing consumer base is going to slow its purchases inanticipation of the Xbox 360 launch. Next year, 50% of the consumer basewill slow its purchases in anticipation of the PS3."He continued, "So all I'm really saying is most people think this is a 0[percent] year and next year is +20 because the transition occurs this year,but I've got this year +10 and next year +10. So we end up in the same placeat the end of '06... and what does it mean for '07? That's where you get theramp  the PS3, and the Xbox 360, and the Nintendo Revolution and PSP allout and starting to mature."Even with the expected head start that Microsoft will have with its Xbox360, Pachter doesn't think the breakdown in market share will be all thatdifferent from the current generation of consoles, meaning Sony willcontinue to be the market leader, MS will follow closely in second place andNintendo will take the third spot. "I think when we have this talk in 2010,Sony's going to have 55%, Microsoft's going to have 35% and Nintendo 10%,with all three of those having +/- 5%," he predicted. Dealing with backwards compatibilityOne topic that has been widely discussed when it comes to next-gen consolesis backwards compatibility. The PS3 is expected to include this feature justas the PS2 does, and Nintendo has even confirmed that its Revolution willindeed be compatible with GameCube games. That leaves Microsoft. Part of theproblem is that MS switched GPU suppliers. The current Xbox utilizes anNVIDIA processor while the Xbox 360 will incorporate a GPU from ATI. It willtake a significant investment from MS to include backwards compatibility,but Pachter is fairly sure it will happen, even if it means including theold NVIDIA chip alongside the ATI chip."NVIDIA will be very happy to sell Microsoft 5 million or 10 milliongraphics cards," said Pachter. He added that backwards compatibility is fartoo important in the mind of the consumer to leave out. "If you're told byMicrosoft that your entire Xbox library is worthless, including Halo 2,you're not very happy about that. If they decide not to be backwardcompatible I question their judgment."Hopefully, this will be made clear one way or another during the MTVunveiling on May 12.

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