Xbox 360 Design and Production

For the Xbox 360, Microsoft planned to use its existing EMS suppliers, Flextronics and Wistron, to provide the initial production requirements. A third EMS, Celestica, was scheduled to begin production in early 2006 from a new facility in China.30

Microsoft applied a number of lessons learned from the original Xbox when designing the Xbox 360. The original product, designed in-house, had been criticized for its poor appearance and large controller, factors that hurt sales, particularly in Japan. For the Xbox 360, it outsourced design to Astro Studios in San Francisco, which developed a small, elegant machine.31

Microsoft contracted with chip companies so that it owned the designs of the critical Xbox 360 chips, and would be able to go to any contract chip manufacturer in order to continually reduce costs. Intel and Nvidia, the suppliers of the processor and graphics chips used in the initial Xbox, resisted this approach. Microsoft signed up IBM to design the processor chip, with IBM developing a three-core chip by the December 2004 deadline. ATI designed a unique graphics chip, also completing the task by the end of 2004.32

The overall product design, incorporating more than 1,000 parts, was primarily done by the engineering team that Microsoft had acquired when it purchased WebTV in 1997, which had extensive experience in console design. Microsoft also brought its existing Xbox manufacturers, Flextronics and Wistron, into the design process so that they could design production to be optimized for the Xbox 360. Xbox 360 production was anticipated to involve more than 10,000 workers in China. Once produced, the products would be transported by ship to North America, Europe, and Japan.33

THE XBOX 360 MANUFACTURERS Flextronics

Flextronics had been the fourth largest EMS company when it began working on the original Xbox 2000. It grew rapidly through the late 1990s and 2000, but sales flattened as the technology market softened. The company continued to gain market share, however, and in the first quarter of calendar 2002, Flextronics passed Solectron (the company providing after-sales service for Xbox) to become the largest EMS. By the time it began work on the Xbox 360, all Xbox production had been transferred to Flextronicsí industrial park in Doumen, China. In addition to manufacturing, Flextronics had developed a substantial business in providing engineering services. It provided services for a wide range of industries, such as telecommunications and computers.

In the fiscal year ended March, 2005, Flextronics had revenues of $15.9 billion, with net income of $340 million. It had 82,000 employees worldwide.34

Wistron

Wistron was a Taiwanese EMS, which had been owned by Acer, a Taiwan PC manufacturer. In 2001, Acer spun off the company, maintaining about 40 percent ownership. Wistron offered a wide range of engineering and manufacturing services to its customers, primarily in the computer business. In 2004, Wistron had revenues of $3.7 billion, suffering a small loss.35

Celestica

Celestica began in Canada in the early 1900s when it was created by IBM to make parts. As IBM grew, Celestica developed as a manufacturing organization, providing circuit boards, memory devices, and power supplies. IBM sold Celestica in 1996, and two years later it went public through an IPO. Celestica became one of the world ís leading EMS companies, with sales in 2005 of $8.5 billion, while losing $47 million.36