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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."
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.
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.
I think it's adorable that you think those are two different things.
-Peter
You're completely right, and as such this would be a complete non-story except that this has been going on for six years. At what point does it stop being short-sighted to question repeated 9+ figure (before the decimal) quarterly losses on a product? Could any company other than Microsoft have afforded to maintain "loss leader" status for so long? Could any company have avoided a lawsuit by their competitors over it for this long? The story goes out of the way to make it look like it's the warranty thing that is pushing them into the red, but last I checked $1.1 billion was $700 million dollars less than $1.8 billion... So they would have been eating a $700 million dollar loss even without the warranty thing. That's still a $350 loss per console even after accounting for the "profit" on the high attach rate.
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.
Actually it shouldn't be a sign of that at all. In fact quite the opposite; when a company can sustain losses in certain divisions yet still post an overall profit it sounds like capitalism is working pretty well.
Think of it this way; if Microsoft was some other company and the X Box 360 was a research project, wouldn't the capitalistic system have to be working for them to sink $2 Billion into it in hopes of a return?
Just cause you hate M$, don't try and blame larger forces (the government, capitalism, whatever).
We are the all singing, all dancing crap of the world....
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.
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.
As others have said, that excuse may have worked in 2002. It's no longer very convincing in 2007.
Video games were a new market for Sony in 1990. Didn't take them nearly that long to start turning a profit.
Additionally, reporting like this just promotes the same short sighted point of view of earnings and stock performance that we deride Enron execs for.
We deride Enron for breaking the law. Not for a "short sighted view of earnings."
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.
At some point, the idea is to make money. It's not a popularity contest. If that were MS's goal, it certainly would be "short sighted" and worthy of derision. Presumably, they are in business to make money, not just so they can waggle their fingers and say "nyah nyah!" at Sony.
So far, their Xbox division has been run like a charity. And it's not getting any better. They've been saying they're on the verge of turning a profit for years now, and they still say it. Well, guess what? A $1.89 billion loss is not due to a $1.1 billion charge. Where's the extra $800 million coming from? Those are real and continuing losses outside of the reliability problems. Additionally, sales of the system are way down from a year ago, they've missed their shipping targets by 400,000 systems, and revenue at the division is down a commiserate amount.
Combine that with the reassignment of J Allard and the resignation of Peter Moore, and it's all starting to look a bit like a ship that, if it's not sinking, is at least taking on water and listing badly.
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.
So, they're not feeling as much pressure anymore, but the pressure from Sony and Microsoft pushed them to take a risk and produce the Wii, much to everyone's satisfaction.
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.
Who cares? As a consumer, as long as the product is good and comes at a reasonable price, then Microsoft's bank account is Microsoft's problem-- not mine.
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There are plenty of people who aren't consumers that care; investors, etc... But consumers should care too. Look at what has happened to innovation in other markets in which Microsoft has purchased their way into market share leadership. Assuming that Microsoft actually cares about the profit from a successful gaming division, consumers of gaming hardware shouldn't be looking forward to a stagnant future in which Microsoft has a stranglehold on the market. And that's a best case scenario. Worst case is that Microsoft doesn't even care about making a profit from this or future Xboxes, and they simply wish to use it as leverage to license their entertainment software tools(DRM, codecs, Embedded Windows, DirectX, etc)... In that case Microsoft's bank account doesn't have a problem at all, but yours will if you have any desire to use digital media.
Sure, nobody sees that happening this console generation because Nintendo's system is so popular. But if Microsoft makes the gaming market sufficiently unprofitable that Sony makes their exit this generation, they can turn their attention to Nintendo next generation. And you can be sure there won't be any new entries into the gaming console market now that Microsoft is in the game. There simply aren't any companies big enough to get a foot in the door.
If that's what you care about, I'd be a ton more worried about EA in the games industry than Microsoft. Sure, Microsoft's not small, but EA is huge-- and they have exclusive contracts with a disturbingly high number of sports leagues-- and they've attempted hostile takeovers of competitors in the past-- and they own 70%+ of the industry now.
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