Xbox division post $1.9 billion loss

Xbox division post $1.9 billion loss

Summary: Microsoft continues to plough money into Xbox, but a profit is nowhere in sight.

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TOPICS: Microsoft
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Microsoft continues to plough money into Xbox, but a profit is nowhere in sight.

On Friday the Xbox division posted a staggering $1.9 billion loss.  This loss is partly down to the absorb $1.2 billion the company had to throw as upgrading the 360s warranty and maintenance program.  I'm betting that the disc scratching lawsuits will have a negative effect on profits over the coming months.

It's not all gloom though.  Microsoft has managed to dramatically cut the  manufacturing costs of the Xbox 360.

The more I look at how Microsoft markets the Xbox, the more convinced I become that not only won't it turn a profit any time soon, but that Microsoft isn't interested in making a profit - it's all about hammering Sony's market share.  however, I'm pretty sure that Microsoft didn't bank of the Wii being the runaway success that it's become, forcing the company to fight a games console war on two fronts.  This means that the hope of seeing a profit has been pushed further into the future.

Thoughts?

Topic: Microsoft

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24 comments
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  • As should be obvious, MS WILL spend billions to protect the twin cash cows.

    They were scared stiff that game consoles would morph into something that could become the platform for word processing and web access for a lot of households. And, given that game consoles were really cheap, that means buying a second game console instead of a computer. Well, that still might come to pass, but we are not there yet for whatever reason. And, Microsoft made the huge mistake of following Sony upscale instead of going for the mass market. So, MS has spent billions to protect the twin cash cows, but with nothing to show for it.
    DonnieBoy
    • Even theoretically doesn't protect the cash cow

      A friend of mine bought a 360, and that covered his gaming needs. The replacement for his desktop was a Mac, since the gaming went from PC to the 360
      rpmyers1
      • Right, MS really dropped the ball here. They have lost billions and got

        nothing out of it. What they thought was that if lots of people were using word processors and browsers that came with their game console, that it would reduce the network effect and hence lock-in for Windows and Office. But, Sony and Nintendo never were willing to make their game console work like computers for fear that way too many would buy them for computers, and, when you are selling at a loss, . . . .

        So, MS may have only hurt themselves here, as they have helped legitimize the idea of a separate game console for gaming, and REDUCED the game lock-in for Windows, at the same time creating ZERO dependency between Windows / XBox.

        You really have to feel sorry for Billy and Stevie.
        DonnieBoy
        • Vista doesn't help either

          Think about it why play games on a OS that slows down video and audio performance?

          I don't know what MS is thinking but it doesn't appear to be working. At least not here. I doubt Windows Seven will help anything either.
          T1Oracle
  • Two fronts - not sure

    I think MS is making a mistake trying to compete against the Wii. It would be like a marketing competition between a flashy sports car with a pile of fancy options and slick styling and a great little ATV that's fun to use. Both consoles happen to connect to the TV. After that, the similarities pretty much end.

    Frankly, you could buy both a Wii and a 360 for the cost of a PS3. Why buy the latter at all? MS should stick to "competing" against Sony. They don't have a prayer against Nintendo.
    ccrashh2@...
    • It was still a big mistake for Microsoft to follow Sony upscale. Your

      analogy is also not very good. The Wii is actually more fun than either the PS3 or the XBox, and at a much better price point. Both MS and Sony went way too far upscale. They did NOT want to lose all of that market share to Nintendo. They are both competing directly with Nintendo. The Wii IS a direct substitute for either the PS3 or XBox.
      DonnieBoy
      • And Nintendo turns a profit on every Wii from day one.

        NICE!
        Kid Icarus-21097050858087920245213802267493
  • Funny...

    that even though these losses are the direct result of MS building shoddy machines Adrian can still find some fluffy positives to remark about Microsoft and their road to profit. Hmmm... where was that forgiving attitude with Apple there chief. I think it needs to go both ways. The XBox could become a huge failure if things don't turn around but why is no one pointing out that fact, huh? This same "blogger" was/is eager to jump on the "look Apple is stumbling" falsities but can't call MS on their faults. Lame! XBox could be in serious trouble and this site should be on top of that fact just as they are on Apple's issues. Too funny!
    massiv_design
    • Well, to be fair, he did say he sees now way that MS will EVER make a

      profit on XBox. They only got in this to deny market share to Sony, but then the Nintendo surprise.

      Well, the problem was MS following Sony to far upscale.
      DonnieBoy
  • Perspective please!

    Sony are outsold by Microsoft by more than two to one in virtually every market. What are Sony's losses? Who can say. The Wii outsells them over four to one.

    According to Wikipedia, Microsoft is looking to turn a profit in 2008 by decreasing the price of the unit and saturating the market whilst banking on the sale of peripherals, which have a higher profit margin.

    This is a game that plays out for years. All of these companies come out w/ new units at the same time, then the sales game goes on for upwards of half a decade. Christmas will be here in half a year and I think the Wii will continue to do fabulous and the Xbox will come in second, because it appeals to adults more than the childlike Wii, and the PS3 will come in third because of the staggering price.

    A billion dollars is not a killer loss in this game. They can coup that in a couple of months if they get their production costs down. They've sold twelve million units already and they would've sold more if they had them. They released it early to be Sony to market. If they get it down before Christmas, expect that dept to break even, then slowly turn a profit.
    SpaceCowboyNJ
    • Doubt they would've sold more

      Stock is plenty in stores still, so the demand isn't there. MS even reported a 60% drop of sales from the same time last FY.


      And childlike Wii? Older generation is one of the targets of Nintendo, and it's working fairly well (cf. Wii bowling, Brain Age, Wii Fit)
      rpmyers1
      • They still outsale Sony regarless.

        Again, they don't have to sell a ton of them if they can get production costs down. As they stated, their market strategy is to sale peripherals and games. Name a PS3 or Wii game that sold more than Gears of War or the Halo series. You can't.

        They spent over one billion on repairing the 360s they rushed to market. This is a race of tortoises, not hares.

        I know a lot of people, myself included, who bought the Xbox a couple of years after its release. This is a long game.

        Wii is childlike. I would get one because I have two daughters. But I would rather be playing Gears of War. Sure adults like the Wii - Japanese adults. They're like children anyway. We're talking about a country where the largest grossing movie of all time is an anime cartoon.
        SpaceCowboyNJ
        • Zelda

          Zelda series has out sold Gears of War and Halo series combined.

          Oh wait, you were comparing Wii games to all PC + XBox + XBox 360 games.

          [i]Wii is childlike.[/i]

          That is your opinion and you are welcome to it. Funny that a lot of anime cartoons are adult oriented like Blood+, Cowboy Bebop, Bleach, ect.

          Let some child watch Blood+ and see what kind of nightmares they get. Of course this is the lighter stuff that is out.
          dragosani
    • $1,000,000,000

      No, to Microsoft it's not a killer loss. They have about $29b cash on hand right
      now. But I really doubt they could "coup" that in a couple of months.

      Considering they've only shipped (not sold) 12 million units in just over two years,
      they'd have to get their costs [b]way[/b] down, and start charging around $2,000
      per unit to get that back in a couple of months.

      Math isn't your strong point, is it?
      msalzberg
    • Perspective Indeed

      No MS has not sold 12 million units. They have shipped, aka filled the channel, around that number. I think it is a little smaller than 12 actually. =) And thus they have plenty of stock. Go check your local Best buy or Wal-mart.
      massiv_design
  • Woooofburgers!

    $1.9 Billion with a B? Wow. That's not chump change, even for Microsoft.
    doodlius
  • Business Fanboys

    Fanboy culture has been derided for it's zealotry. For every Nintendo freak out
    there however, there are a dozen business groupies. They put sales figures before
    good judgement. They throw their support behind the player with the biggest cash
    pile and the most inertia. They promptly congratulate themselves for picking an
    easy doubt-free path. To make sure everyone knows how smart they are, they
    start making declarations of the obvious.

    So Microsoft is to be congratulated for being able to afford this snafu? How about
    no.

    They have sold a flawed product. 360's will likely fail. That's ok, it's under
    warrantee right? The problem is, they'll give you the very same flawed product
    back to you. Even the elite version has not been re-engineered. They have to
    throttle back the processors and effectively downgrade the product, or increase
    the cooling and change the form factor. Newer games are going to be even more
    demanding on the processors. This doesn't get better, it gets worse.

    The real issue here is not market share or money piles. Both are subject to change
    in a capricious market. The issue is consumer trust. Apologies to the peanut
    gallery, for not having a metric to parrot. Sorry, but some times it's just more
    complex than you'd like it to be. Hardcore business fanboys should think about
    stepping up though. Embrace that complexity. Make this about more than "you",
    "right now", and the fleeting impressions you're left with, by todays sales figures.

    The wii sells like hotcakes, the PS2 continues to dominate the installed base, and
    the PS3 gains steam. Trust is being built. Microsoft meanwhile, a company that
    has a long history of causing consumer harm, is doing it again. They have chosen
    not to embrace parallelism, and instead, pushed their luck with thermal thresholds
    and "inhale" form factors. A rework of the 360 would extend it's life and further
    propagate the worthy live services. This isn't happening. 360's are blinking out all
    over the land.

    A low grade male ego often can't acknowledge the purchase of and lemon over
    $300 with the family funds. They will defend the decision to the 3rd set of red
    rings. In the midst of this epidemic of Stockholm syndrome, maybe it's time to
    stop admiring those who are taking advantage of you. Or... let the shame spiral go
    on, as you see fit.
    Harry Bardal
    • More gibberish from the King of Gibberish

      The fact is they had an issue and they addressed it. The new units have had there cooling upgraded. It is kind of like the miriad of issues that have plagued Apple products over the years. It is really kind of ironic for a Mac fanboy to pick on Microsoft for a thermal problem after the thermal problems with the original MacBook Pro.
      ShadeTree
  • Media Center anyone?

    Microsoft has made it pretty clear they believe they're cornering the whole renting movies on demand, watching dvr-ed tv in another room, ect. So it's not all just about the console war.
    jwjmaster
    • Do you know anyone with a Media Center?

      I sure don't. Who wants a computer in their living room? Only techies :\
      T1Oracle