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The downturn raises the possibility that Microsoft might just stop making Zunes, a move raised by Microsoft chief Steve Ballmer at the recent Consumer Electronics Show in Las Vegas.

WHITHER THE ZUNE?

Microsoft Music Device Suffers Huge Holiday Downturn, Spurring Layoffs
Is Microsoft ready to pull the plug on its Zune player?

The slow-starting iPod competitor suffered a miserable holiday selling scene, with revenues down 54%, according to regulatory filings from the company, an overall decrease of $100 million for the three months ended Dec. 31.

Of course, Apple, too, suffered iPod-related losses over the holiday quarter, despite a 3% unit increase. In total, revenues slipped 16% to sales of $3.37 billion, according to filings.

The downturn raises the possibility that Microsoft might just stop making Zunes, a move raised by Microsoft chief Steve Ballmer at the recent Consumer Electronics Show in Las Vegas. His remarks were subsequently downplayed, with executives pointing to an expansion of the Zune service into other Microsoft-run products like the Windows Mobile technology for mobile phones, and at some point into the Xbox Live Marketplace.

The news follows a round of Microsoft layoffs expected to reach 5,000, the first-ever staff reductions of that size in the company, which will particularly hit the Entertainment and Devices unit—where the Zune group resides. 

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