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Xbox 360 To Profit Next Year, Says Bach
An anonymous reader writes "Robbie Bach, president of Microsoft's entertainment and devices division, has stated he expects the company's console business to finally break even some time in 2008. After years of losses from the games division, this would be a significant breakthrough for Microsoft's efforts in the games industry. '"Xbox is the hardest piece of consumer electronics hardware to produce in the world, no debate," he said, admitting that "costs are a little higher than we'd like." Microsoft doesn't expect to make a profit on hardware alone, but "we'll probably be gross margin neutral on that over the life cycle of the product, and try to break even on that."'"
Nintendo seems to be the only company who is actually generating a profit from their system. And the demand is still so high that they predict it'll be selling out like hotcakes till 2008.
I wonder if MS and Sony are learning anything from this... Not to say that breaking even would be a major financial loss to (especially) Microsoft, but are they really concerned one way or another about this?
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Well, things are going according to plan it seems. Microsoft knew they'd lose a lot on the Xbox generation but would position themselves for profit in the next, and that's exactly what they've done.
Microsoft has LOTS of money, and can afford to make long-term investments that are in the billions-of-dollars range. Keyword: investments; they are not just throwing money away here. Their business model seems to be working, so good for them. (As long as it means I get to play good games on my 360 ^_^ otherwise I don't care)
I wonder what position SONY is in... is SCE looking to break even on the PS3 at *any* point in the future? Maybe, maybe not... the money they've spent on marketing alone, coupled with the losses on each console... the PS2 is probably covering a lot of that but I doubt it's anywhere near all of it.
I like basketball!!1!
Every year whoever is the latest person to be running the Xbox stuff says 'next year we will finally break even.'
The failure rate on Xbox 360s somewhere in the 30-40 percent range - and right from the latest quarterly report Microsoft indicates that having to extend the warranty period for current 360 owners and the cost of replacement units is a huge cost. The move to 65nm has been moved back to later this year and it remains to be seen if that will finally keep the 360s from failing. It has been a year and a half and from the failing 360 Elite units already it is clear that Microsoft still doesn't know what is wrong or how to fix the hardware problems with the system.
So what that means is by the time the hardware refresh hits the market there are going to be two years world of 360 units out there that are going to continue to have the red rings of death problem. That is going to be a gigantic and continuing source of losses for the division.
And then there are the moves to create a class action lawsuit for the 360 hardware defect problems. The insane prices for peripherals and the 50 dollars a year are lessing the financial blow but even that most likely won't get the division to the break even point by next year. If the break even point doesn't come before the next couple of years Microsoft is going to have a tough choice to make as they would need to start ramping up the very costly process of designing and putting in motion the next Xbox hardware.
With the dramatic drop in BluRay drive prices and Sony already moving parts of the PS3 to 65nm and quite possibly have the entire PS3 moved to 65nm before Microsoft does later this year you could very well see Sony breaking even before Microsoft does and actually paying less to manufacture the PS3 with its much more advanced tech. Sony most likely will be paying roughly the same price for a BluRay drive as Microsoft does right now for the much smaller capacity DVD drives by this time next year.
The execs up in Redmond are going to have some tough decisions to make about the future of the Xbox project. Anyone who follows the various Microsoft employee message board can attest to just how unpopular the Xbox project is with the other divisions at Microsoft.
If a console isn't generating [enough] profit, it always runs the risk of being abandoned. That's usually bad for gamers*.
;)
That said, it's unlikely Microsoft would abandon XBox even if it didn't make a profit next year or even the year after. It's there simply to be in the market. The justification is likely the same as Windows: get enough people familiar with the platform and nobody will even consider the alternatives.
The statement is nothing more than to pacify the shareholders on the recently news that Microsoft's gaming division lost $300 mil last quarter.
*Bad for most gamers. It's great for people with stocks of games and are speculating on the aftermarket value of them. I could rant about those people but, nah, I'll leave it to someone else.
More Twoson than Cupertino
Don't you ever equate the pathetic 360 hardware with the PS2 again.
There are 110 million PS2s out there and they have been running for the past seven years without reports of units dropping dead. Never have people reported problems with PS2s outside of DVD lasers that eventually got dirty or needed to have the focus adjusted with the nob inside the machine. It was not until the massive 360 defect problems started to become public that we suddenly starting hearing stories where, amazingly, 360 owners claiming to have had problems with PS2s. Disgusting.
I have had consoles going all the way back to the Atari 2600 and I have never had a console fail on me or even known anyone who had a console fail. 360 owners are regularly on their third 360 unit and people on five or six replacements is not that rare and there is the current 360 dead unit king with eleven replacements.
The 360 hardware defect problem is a shameful and completely unprecedented aberration in the console market.
Correct me if I'm wrong, but aren't they making a huge pile of cash off of XBox Live? I thought the idea was to sell the console below cost, and make money off of games and services. So whether or not the hardware is making money isn't really news?
I suspect that Nintendo's next system WILL be fast. Maybe still slower than the competition, but closer than this one.
by definition, the same stuff with better execution isn't innovative. it's just another iteration.
"You're right," Fisheye says. "I should have set it on 'whip' or 'chop.'"
I'm a huge fan of the 360, so take this as you will. But that thing does fail more often than it should. In addition to what you've listed, you can add power supply failure as a major problem.
I went through 3 PS2's and 2 PS1's in their lifespans, and I got in pretty late on the PS1. I wouldn't be suprised at all if the first batch of 360's didn't last more than two or three years average for even casual gamers. Hardcore gamers: expect to replace a few.
I don't even want to know what PS3 fail rates are going to be.
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