The news emerged on Gamestop's earnings conference call when executives were asked why its operating margins were crimped. Gamestop's operating margins fell to 26.1 percent from 27.2 percent. TheStreet.com notes that demand for the Zune just wasn't strong enough for Gamestop's time.
The move is likely to give more fodder to the Zune-is-a-doorstop crowd (Techmeme) even though reviews for the latest generation of Zunes have actually been good. The Zune (all resources) is like one of those movies that critics love, but no one goes to see.
CFO David Carlson explained:
The hardware margin was down slightly from the prior year. That was mostly due to our exit from the Microsoft Zune category and to some extent our de-emphasis of warranties related to Microsoft's manufacturing issue they had with the Xbox 360 which really began in the second quarter of last year.
We think these manufacturing issues are behind Microsoft and with that we're confident we can start to re-emphasis warranties in our stores probably in the second half of this year. So we're looking at probably this to be the bottom of the hardware margin and it should go up from here. The new software margins were pretty much flat with prior year. Used product margins decreased slightly from the prior year but improved from the last three sequential quarters.