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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."
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.
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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...
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
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.
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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
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.
Not technology wise. But MS is commonly criticized to ship first and worry about fixes later. This generally seems to have worked for them, at least with software.
Yes, but software can be patched. Hardware is a much more expensive endeavor to fix.
Odd I got moded informative, I also didn't type "I think" like I meant too.
Anyways, I have anecdotal evidence too.
At my college our "games club" has about 21 360 owners, 9 got theirs at launch (day 1 till late about December 05), 8 of them got their boxes at various times from February till around august 06, the other 3 got their boxes this year.
2 people who got theirs early on (1st run, maybe the second run) have had theirs break. The ones who bought their boxes later on, all but one poor bastard has sent there back, most of them more than once, always the 3 rings of death issue. 4 of them got it back and sold their boxes in disgust. The first problems started happening in july of 06 for our little group.
Not to mention the fact that I constantly hear see online "My launch box is still just chuggin away." or things to that effect.
I'm just finding it funny. One guy in our group is convinced it is something to do with the Solder used and RoHS compliance. I think its a possible reason, but MS and its manufactures should ahve had plenty of time to solve the problem.
You mad