David Carlson, Chief Financial Officer of GameStop, said said the following about Zune situation on the call.

"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.

As refurbishment costs really increased with the surging production and that is maximizing gross margin dollars and keeping to our target of used product margins between 48-50%. And the other category was up slightly, that had to do with a lot of video game accessories that went out the door during the first quarter."

Previously their exit from Zune wasn't publicly known. According to GameStop the decision was made about a month ago, and was due to both to poor demand of Microsoft Zune as well as a poor fit with GameStop's mix of products. Of course, you can assume poor demand was probably the #1 reason for this decision.

Source: By Tech Ex -