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Xbox Division Posts Loss of $1.9 Billion
Just when reduced manufacturing costs were beginning to turn Microsoft's Xbox division around, the weight of the warranty guarantee came crashing down on the company. The Xbox division of Microsoft Entertainment posted a loss of $1.89 billion for the fiscal year. Overall the Entertainment division did well, as sales of the Zune, consoles, and Xbox titles helped push revenues higher. Just the same, as Next Generation reports: "The fourth quarter in the EDD was down, with operating losses increasing 183 percent to $1.2 billion, again due to the billion-dollar-plus warranty charge. Revenues dropped 10 percent from a year ago to $1.16 billion due specifically to 'decreased Xbox 360 console sales.' Microsoft shipped 700,000 consoles during the quarter compared to 1.8 million for the same period a year prior."
... Can I buy pot from you?
Being first to market with an unstable platforms seems to be NOT how to run a business. Taking notes....
Someday, I'll have a real sig.
Anytime you're breaking into a new market, especially one that has as many lock-in features as the video game market, you're going to lose money.
Additionally, reporting like this just promotes the same short sighted point of view of earnings and stock performance that we deride Enron execs for. I don't know how Gates and and Co. view the current performance of the 360, but I'm sure they are pleased that they've held their own against the PS3 so far, primarily because Nintendo is eating Sony's lunch.
I'm no big MS proponent, but I don't have a problem with this as long as they don't successfully buy themselves a monopoly in the console/home entertainment industry, I'm glad to see another company willing to compete, which forces the companies I do buy from to try harder to earn my money. Thanks for that, if little else, Microsoft.
Let's go easy on the rounding! 1.89 billion (as mentioned in the summary) and 1.9 billion is a difference of $10,000,000 :)
Attention deficit disorder is a complicated issue, spanning several major... HEY LET'S GO RIDE BIKES!
Comment removed based on user account deletion
Microsoft is in a tough spot with this and they did what they had to do to save the X-box brand. They had two choices, 1) save money and not do anything about the red rings of death and lose the advantage they have over the PS3 (an actual installed base) or 2) put out the billion dollars. I'm glad they did spend the money, to me it sounds like they do actually care about their product. And yes, I'm a 360 owner, and yes, I've had to had mine shipped back TWICE, both for free.
how do falling sales mean your revenue falls when you make a loss on each console, surely it would be better at least in the short term
He clearly states he's using a pipe, so I don't think it's pot that he's working with.
I think it's adorable that you think those are two different things.
-Peter
>as sales of the Zune... ...helped push revenues higher.
This surprises me a bit... as I've never seen one of the things, and hardly ever see an ad for one.
Anybody here ever buy a Zune?
You can't talk about Wikipedia's flaws on Wikipedia
look here for proof!
I'm sorry, but when a rather small DIVISION of a company can post a LOSS of $2Billion and not even phase the company, it's a sign that, well, some companies are simply too big or too comfortable, and normal capitalist/market forces simply are no longer working...
The 360 warranty fiasco was approximated at a $1 billion loss, just from following the link he listed, but now we see:
1) A nearly $2 billion division loss for the quarter.
2) Revenues dropping 10%
3) Xbox 360 sales less than half the level they were a year ago
Clearly this leads to "Overall the Entertainment division did well", while Sony was ripped apart for its $2 billion loss.
I own all three consoles and don't take a particular side, but there's a lot of spin in this post.
They sold Zunes? Really?
- The Amazina Llama
No, but I have some mushrooms you might be interested in...
(-1, Raw and Uncut is the only way to read)
Actually, it's more complex than that. By earmarking the money now, Microsoft is avoiding the problem impacting future returns. i.e. It would suck if in 2 years Microsoft is going gangbuster on sales, but its quarterly earnings show a loss thanks to the extended warranty two years ago. By doing it this way, Microsoft gets the loss out of the way in a single quarter, thus providing themselves and investors with a better understanding of how they're doing in the future.
Accounts payable vs. receivable may seem like the best accounting method, but in many cases it's not. Payables vs. Receivables is always in a state of flux, so you tend to try and account for known quantities instead. To a certain degree you do this yourself (or at least SHOULD be doing this!) when you record checks you made out in your checkbook. The balance reflected in your checkbook is entirely on paper and does not necessarily represent the actual contents of your account at any given point in time. The more checks you make out, the less likely the two sources are to be in sync. Which isn't really a problem as at the end of the day you still have the same amounts of money going in and out.
Javascript + Nintendo DSi = DSiCade
Of course the story says "year" but my math assumes "quarter"... So my $350 number has to be divided by at least 4 to be accurate. Feel free to mod me down as "-1, Incorrect".
Offtopic?
That's why they're making money, I believe -- they're not really advertising the thing. People who are generally anti-iPod, for whatever reason, know about the Zune. And some of them buy one, because it's got a nice screen and isn't an iPod.
I think MS knows that it can't really overcome the iPod at this point, but if it doesn't advertise them (or advertises very selectively), people will buy them and they'll not have to spend huge gobs of money trying to beat Apple's advertising.
I this loss on the x360 hardware alone or hardware and software?
A company like Microsoft allocates $1 billion dollars for warranties. But that doesn't mean they will use that $1 billion.
Take for instance a stock I am following. BRLC (They sell LCD TV's Olevia brand). The company last year allocated $16 million for warranties; a cost for them. But they only used $4 million in warranties. Thus, the following year they posted a $12 million rollover profit. If XBOX quality control is better than expected, a good chunk of MSFT's $1 billion will go back into their own pockets. And will help them boost earnings.
Microsoft's SEC filing says--
It certainly is telling when you have enough revenue from windows and office to basically spend whatever it takes to enter whatever market you want. Hard to imagine there are many established companies or startup companies that can incur those kinds of losses to enter or take over whatever market they feel like without going bust or the board of directors shutting the place down.
Family... hmmmm...
The ability of high-level execs to get their bonuses (most of the time a bigger number than their salaries) is tied to the performance of their respective divisions.
Case closed.
No, they need about $8.4 billion dollars in profit for the console division to recoup it's losses. As I understand it the consoles (including games, live and peripherals) themselves have never turned a profit, though the entertainment division has had at least one miniscule profit.
/ microsoft-management-software_cz_vm_0913microsoft. html)_ rel_q4_05.mspx)o soft-lost-126-billion-launching-the-xbox-360.htm)m icrosoft_fisca_6.html2 89-Million-in-Q2-With-Xbox-360-2544.html= 16432
That 8.4 billion comes from:
By 2005 the Xbox had lost $4 billion.
(http://www.forbes.com/home/technology/2005/09/12
In 2005 the entertainment division lost 391 million.
(http://www.microsoft.com/msft/earnings/FY05/earn
In 2006, the Xbox 360 lost $1.26 billion
(http://www.videogamesblogger.com/2006/10/13/micr
In 2007, Microsoft has lost $2.76 billion
http://www.microsoftmonitor.com/archives/2006/10/
http://www.cinemablend.com/games/Microsoft-Loses-
http://www.gamesindustry.biz/content_page.php?aid
Now there might be some overlap between Fiscal 2005, and the initial number but given the number's $8.6 billion, even an overlap of $200 million is insignificant to the final number. It is highly unlikely that the Xbox group will recoup those losses in this console generation.
Fanatically anti-fanatical
Atari loses 500 million in 1983, and Warner panics and promptly dumps the division. Even adjusted for inflation, Microsoft is losing more than this and are sticking it out? Amazing times.
Just to correct myself, I double counted Q1-3 for 2007, so that's only a $7.6 billion dollar hole. I misread the $1.9 billion loss as Q4 instead of end of year.
Fanatically anti-fanatical
I'm trying to decide if you're defending accounting practices or making an insightful point about the nature of money. Care to elaborate? I feel like you've got more to say and I'd like to hear it.
It seems to me that if the point of language is communication, then accountants (or perhaps more accurately, reporters who share accountant-speak outside its usual context) are a blight upon it. For example, if I say I've lost $5, I mean I had $5 and now I don't have it and besides, I've nothing to show for it. If I buy something for $5, I do not say that I've "lost" $5, I say that I've "spent" $5. If I'm being insufferable and aloof, I might say I had "expenditures" of $5.
But if you post an "operating loss" of $100, what does that even mean? My deductions were more than my income... which means my expenses were more than my revenues. But accountants basically exist to shift the numbers; instead of saying "this warranty plan is going to cost us $X over the next five years," MS writes on a piece of paper "lost $1 billion" and suddenly they're knocking on a $2 billion loss. My (limited) understanding of various financial laws suggests that deciding where and when to report your losses or gains is perfectly normal and somewhat regulated. While I couldn't tell you how, this "accounting magic" (or perhaps I should call it monetary time travel?) probably helps with economic stability, et cetera.
I just see it as also having a seriously problematic effect on the accurate and meaningful discussion of certain business ventures. As near as I can tell, MS has been working for years on this little console gaming project of theirs, and has yet to show a true profit from the endeavor. Maybe MS is good with that, maybe they want to control everyone's living rooms the way they have monopolized everyone's office space, and maybe they want it so badly that no expense is too great. But as a publicly traded company--and perhaps more importantly, as a company once recognized as a monopoly--I think we need to look at MS more carefully, and make it a point to cut through their accounting BS and discern exactly how their business is running and exactly how they are justifying the fiscal hemorrhage that is their entertainment division.
Because even with my limited knowledge of accounting, it looks to me like they are engaged in anti-competetive behaviors, basically throwing their OS and Office cash down a big hole in an attempt to hit their competitors where it hurts.
The Zune and Sansa are advertised like crazy around certain college campuses.
...completely different.
This is a business article by a person named "Graft." Isn't that a conflict of interest?
Remember how long it took the Genesis to succeed, guys? All they have to do is keep the thing on the market. MS is still making the right moves, and the race is far from over. It's only just begun now that the other major players have entered.
--
Toro
Actually, you can smoke pot with a pipe. Uhm... I mean... at least so I heard.
It's shocking, simply shocking, that Microsoft's hardware products follow the same methodology as their software products: ship it now, fix it later.
All opinions presented here aren't mine.
Is the Zune adding profit, or is it just adding revenue?
It's a strange definition of "well".
So if you were in charge of Microsoft, what would you do to turn the 360 division around? Slash console prices? Push a Wii-style controller onto the market and shift strategy to targeting the casual crowd? Stay the course and hope things get better with the introduction of games like GTA IV and Halo 3? Kill the division?
What I'd do, I'd say shove off to the ESRB and introduce a line of hentai-style porn games. That'd move some units, figuratively and literally.
The easiest way for Microsoft to regain xbox consoles on the market. Go back to to the design board with a third party contractor and tell them to come up with 10 different solutions to the current problems with the xbox 360. Cover all warranty costs with the design improvement added in. Drop the cost of the console by 100 bucks across the board. Also, for a limited time after fixes are done they should sell a Halo 3 limited edition xbox 360. Design it with colors, ect. Release it with Halo3 in the box and sell it for the current pricing structure. I'd also opt for a giveaway of free halo 3 to all Xbox field reps 1 day before launch. Who is it you think has to deal with the problems on a day to day basis. Bill Brunelle certainly doesn't.
Not bizarre at all.
For all intents and purposes, Windows and Office will continue to grow in revenue, but they're mature markets now. There won't be big jumps there, they already have saturation.
Microsoft needs to find new revenue streams, insurance against either a market shift against desktops or against a competitor actually knocking them down. So, they've focused on a number of other markets -- gaming is one. Curiously, they're generally showing losses in all other markets (except office/windows), but it's still a necessary thing for them to try to get started.
Only a company with a secure revenue stream like Microsoft's could take this sort of long-term approach, lose billions per year for years, and still stay in the market.
I was born in 1975. ...
I was an early microcomputer aficionado and was at my early 8 playing with a MSX running Microsoft Basic.
As I grew older, I felt an urge for an IBM with Microsoft DOS programming in QBasic with edit.
Microsoft Windows 3.1 grabbed my interest eventually and there was I setting modems up and getting into BBSs...
Microsoft Win95 got me to line up to be one of the first to get it.
I was astounded by Win2K and the host of amazing DirectX games, including my beloved Microsoft Flight Simulator.
Microsoft lauches an amazing gaming machine: XBox! whoorey!
Microsoft was able to steal gold developers Rare from Nintendo. whoorey! take that, jap suckers!
Got Microsoft XBox 380 on day one!
Got Zune on day one!
Got Microsoft Vista on day one! Am I rich and souless or not?
oh, those were the golden days... now I'll take a snack over my internet-powered Microsoft fridge, sit to play my XBox Ultra on my Microsoft home-theater and then feel today's Space Opera simstim via my left ear cyberspace microsoft...
I don't feel like it...
Revenue is money in, Profit is money in minus money out. You can make a product for $1000 and sell it for $100. If you sell 1000 of them, you have a revenue of $100,000. However, you have lost $900,000 in terms of profit.
By writing it off last year, they can still claim in shareholder meetings and press releases that they "plan to and are on target to profit in 2008".
Hmm Sega Saturn working after 20 years, fantastic considering the console was first introduced in the US on 22nd Nov 1994 http://en.wikipedia.org/wiki/Sega_Saturn. Oh well I guess the secret time travel facility inbuilt into the console must be working or you are smoking some really good stuff.
There ain't no such thing as proprietary standards only proprietary formats. Standards are by definition open.
It's interesting that you mentioned Microsoft's losses in the other markets (I'd have to do digging but certainly their appsuite and OS business are their only real revenue draws). I worked for Quark for a time, and watched them try to break out of their associated market with QuarkImmedia and an aborted Photoshop clone (never got out of the lab). I wonder how long Microsoft can sustain those kinds of losses in front of investors before they cry foul and Microsoft's cap drops. Investors are highly fickle and if they got the idea that Microsoft was a one-hit wonder, it'd be dramatic. I don't think carrying another mega-loss project would help them maintain a power-position with Wall Street.
In fact, it's one hell of a risk.
Last year, they reported loss of around 2 billions.
This year, it's 1.89.
You have to remember though, that on that 1.89, around 1.2 was spend for extending the warranty to three years. They have purposefully included that 1.2 in this year's budget instead of "spending" it as repairs come.
In short, MOST of that 1.89 havn't been spend yet.
Their "loss" passed from around 2,000,000,000$, to around 700,000,000$ in a single year.
Add into that the fact that this 1.89 billion losses is accountable for ALL "entertainment" platforms. The loss operated by the Zune and other such things are ALSO counted in it. This is NOT only the losses for the 360.
Counting that, the 360 itself may be very close to breaking even.
So i think they are right when they say that they are doing "fine" even if they reported losses of 1.89 billions.
With Halo 3, Mass Effect, Halo Wars and other such "anticipated" titles coming out, i beleive that next year, they WILL break even and start to turn in a profit. At least their 360 division will, if not their music and movies...
Except that articular console 'game' system isn't supposed to make money or even play well. If it does then fine, but the primary purpose is to be a testbed for the technologies formerly known as Palladium. That's why its maker doesn't appear t care that people laugh at its clunkiness, poor sales, egregious quality (30% return rate), fire-starting powersupplies and what not.
Beta is broken and the link to classic doesn't work. Stop wasting our time or there won't be anybody left here.