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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."
Actually its funny, but launch boxes appear not to have as many problems as boxes made in 2006.
You mad
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".
Forgive my ignorance as I've only taken an intro economics class. I thought as a convicted monopoly, Microsoft has more rules imposed upon them than other companies. They've made billions upon billions of dollars with their Operating System and Office products. Now with that money and monopoly in one market, they seem to be using predatory pricing to capture a new one. They have the ability to lose more money than their competitors, to the point where they may even knock a competitor out of the game (Sony). They still haven't covered their expenses from the first Xbox (development, marketing, etc), let alone the Xbox 360.
Don't get me wrong, I love competition. It just seems they'll artificially lower prices to the point where their competition won't be able to compete. It is a bit of an oversimplification, with Sony shooting themselves in their own foot with the disaster the PS3 has become. Amd with Wii sales, though, this tactic may be offset.
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--
Predatory pricing has a perjorative connotation. The term is usually trotted out in the case of a dominant market leader in a market with low amounts of competition trying to squeeze out a fresh competitor by suffering temporary losses. Here it's a relatively fresh competitor trying to squeeze /into/ a market with low amounts of competition by suffering large losses. The carcasses of dead consoles line this industry, it is extremely hard to enter.
http://en.wikipedia.org/wiki/Loss_leader
Is what is being done. Predatory pricing is an established market power temporarily reducing their prices to loss levels to keep out competition. The difference here is that the fresh competition is taking loss levels first, in order to become competitive, which is good for the market overall(but risky for the company doing so, which is what I mean by those corpses).
And even with MS's huge pockets propelling them to #1 early this generation, it looks like Nintendo will be passing them by the end of the year, and leaving them in the dust by the end of the generation, and the company has never adopted a loss-lead strategy.
With 3 major players, gamers have it pretty good actually with the increased competition. The console gaming industry already has high levels of product differentiation which is sort of like a partial monopoly in that a company is granted some level of market power due to idiosyncracies of their product. You miiight be able to substitute between a PS3 and an Xbox360, but substituting to or from a Wii is much harder to justify. The three are not directly equivalent because of product differentiation, so they are able to wield power due to this inelasticity.
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
Sony is not dead or dying or even fatally wounded. The PS3 is not selling as bad as some make it out to be. Take a look at some charts.
The PS3 is selling about the same as the X360 if you align the launch dates.
The PS2 (how many years old is that now? Seven?) is selling the same as the X360 each week. In other words, if you think thtat MS is about to knock Sony out of the market, you must be speaking from the far future or coming from a different dimension or something. The PS3 is not a disaster. It's not the success Sony wanted it to be, but if you think the X360 is doing great, then the PS3 is right behind it.
Stop Global Warming!
Just say no to irreversible processes!
PSX was the old codename inside sony for the device officialy known as the PS1. Some magazines continued to use the PSX moniker after the release to prove how hardcore they were. "We were fans when we saw the prototypes" sort of thing.
But a few years back Sony released the PS2/DVR combo device called the PSX, but it wasn't released in NTSC U/C territory.
How so? If YOU look at the sales charts, you'll see that the XBox 360 is very close to being outsold by the Wii. I'm guessing by September that the Wii will be well ahead of the xbox360, and that by the end of the Christmas season, the XBox will be left in their dust. Seems to me like Nintendo has the right way to run your business, which is providing and entertaining product that almost everybody can afford and that is actually reliable. Also, having it work right out of the box is a nice plus. Having to buy a game on top of the system for XBox360 and PS3 makes them even less appealing.
Anthropic principle: We see the universe the way it is because if it were different we would not be here to see it.
Sorry to be pedantic, but PSX was the codename for the CD-ROM add-on that Sony developed for Nintendo to use with the SNES. The deal fell through, so Sony brought it to market as the Playstation. The PSX moniker not only stuck, but was somewhat accurate. :)
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