Xbox Division Posts Loss of $1.9 Billion 150
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."
This is clearly a sign. (Score:5, Funny)
seems being first isn't what's important (Score:3, Insightful)
Re:seems being first isn't what's important (Score:5, Informative)
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So while it's just anecdotal evidence, that's more then you have.
Re:seems being first isn't what's important (Score:5, Interesting)
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.
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If you start see a few problems early on, it's a warning sign...
Then, you start to see the 'expected' variations in components that you *hoped* you designed for - but most times you didn't test for, because it's hard to order components to be at the extremes of
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That didn't happen on the first launch drives, on any of the parallel or SCSI drives. It didn't happen until a couple of years later, when Iomega redesigned their drive mechanism to be cheaper for the mass production of IDE models. The 'now that we have it working, let's make it as cheap as possible for when we sell millions' problem is what killed them in the end.
Re:seems being first isn't what's important (Score:4, Insightful)
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Re:seems being first isn't what's important (Score:4, Interesting)
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Well, yes and no. I agree with you that it is sixth-generation hardware (Wii) with a new control interface being released alongside seventh-generation hardware (PS3 and Wii). However, I don't think it's unfair to compare the t
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Hey now! (Score:2)
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Comment removed (Score:4, Interesting)
Re:Lots of Numbers (Score:5, Insightful)
I think it's adorable that you think those are two different things.
-Peter
Accounting Magic (Score:2, Interesting)
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 i
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That aside: my limited exposure to accounting (two mandatory semesters in college) leads me to believe that, in large part, what makes public (GAAP) accounting so inscrutable to most people is that it's tightly regulated. That is, everything needs to be accounted for in a very specific way, which, if you spe
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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?
Re:Lots of Numbers (Score:4, Insightful)
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.
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Would someone care to explain how all this accounting mumbo-jumbo translates to "Overall the Entertainment division did well, as sales of the Zune, consoles, and Xbox titles helped push revenues higher?"
It's Zonk-atorializing in action.
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.
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Microsoft's SEC filing [edgar-online.com] says--
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It's a strange definition of "well".
Re:Lots of Numbers (Score:5, Interesting)
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.
Added side benefit (Score:2)
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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/ microsoft-management-software_cz_vm_0913microsoft. html)
In 2005 the entertainment division lost 391 million.
(http
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Caught between a Brick and Red Rings of Death (Score:2, Insightful)
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The amazing thing in your post though is that you admit to having shipped back your 360 twice, yet seem happy about it.
Personally I've never had any consumer electronics product that I had to send in for servicing once in its lifetime, let alone twice within a year and a half (and I'm assuming you bought yours soon near launch).
To me that smacks of a product that
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If they we're really willing to fix the problem, and we wouldn't be hearing about new units that still have the issue. MS setting aside th
Clearly a Sign (Score:4, Interesting)
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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, wha
A Microsoft life (fictional) (Score:2)
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.
Micr
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I was born in 1978.
My first computer was in 1982 at age 4, an IBM PC with 64K of RAM and BASICA.
I used that until 1990, when I got a 386-20 running DOS, and I started using Borland C++. It came with about 100 pounds of manuals, a quarter of which was the Windows 3.1 API.
I started learning the Windows 3.1 API, and absolutely hated it. Then, I found a floppy disk image on a local BBS, Linux 0.99.
I kept using Linux until around 1996 (when I graduated from high school), when I started to r
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That's misleading... (Score:5, Informative)
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.
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Now you know why Moore left... (Score:2)
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.
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Bizzare (Score:2, Insightful)
And now for something... (Score:2)
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
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my bet is that the 360 MUST turn a profit by the end of its lifespan, or Microsoft will back out of the console market.
One can only hope. Then they can return their focus to developing OS software that works. ;^)
I agree. If they are in this same trouble after Christmas, the enitre XBox venture (both 1 & 2) is a disaster. Right now, however, it just may be the result of people waiting for the other 3rd gen consoles to come out.
The console market is funny that way. Time will tell.
One thing is for sure, the 360 is a flop in Japan. That's not good news for MS. They are going to have to relocate or duplicate the heart of th
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It's shocking... (Score:4, Insightful)
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Try product abandonment. I bought an "Actimates" D.W. doll for my daughter in '99 ($60), with the computer hook-up ($30), and when it flopped, Microsoft never did another Arthur Actimates title again. They just quit with the original product line.
We got one math and one reading title and that was it. The sales pitch promised many such titles. It was like buying a game console, and the company stops producing games after the initial lineup.
They completely abandoned the line.
They didn't
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Re:New consoles suck (Score:5, Funny)
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Re:New Markets (Score:5, Insightful)
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.
Oops... (Score:3, Informative)
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Yeah, but they didn't make money back later on the Xbox, and I can't see them doing it on the Xbox 360. I mean, last financial year (thru June) they had basically zero competition from the Wii and the PS3, so how on earth do they expect to do better this coming year when the Wii is already out
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Let me know when the XBox 1 install base hits that point
Then find me again, after the XBox 360 stops bleeding money (let alone making a profit)
Re:New Markets (Score:5, Insightful)
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Wrong perspective, I think. The reality is, Microsoft doesn't care about losses in its 'entertainment' division. It cares about overall profits. If the XBOX project helps maintain their other monopolies (meaning mainly Windows here), then it is worth it. For example, XNA helps bols
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But there are other perspectives. It is illegal in the US, and in most industrialized countries, to try and profit not by merit, but by making the market less accessible to your competitors. You
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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.
wow, replace Microsoft with Bush and replace billion with trillion, and replace million with billion...
Trust me, it will blow you mind
Re:New Markets (Score:4, Interesting)
How is the 360 breaking into a new market? They broke into the market with the original Xbox. The 360 is supposed to be a mature platform at this point - Xbox Live ability, huge games library, multimedia features. The fact that not only did they ship fewer consoles than last year and lost money while doing so definitely can't be excused by them "breaking into the market." Instead, it looks like in their rush to dominate they seemed to favor quantity over quality, and even lost on the quantity part.
The funny part is that the criticism of the PS3 is that it's a high price for a console. And yet, it's a damn good piece of hardware. So I guess you get what you pay for?
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Which is exactly what they're in the process of doing. This division has lost billions and never made a profit. Which means, of course, everything from the original XBox to the Zune is sold at a loss and paid for by Vista and Office profits. Leveraging one monopoly to create another is conceptually illegal, but in practicality there's nothing
I'm a Wii (Score:2, Insightful)
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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 [wikipedia.org] 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 (So
Re:New Markets (Score:5, Informative)
http://en.wikipedia.org/wiki/Loss_leader [wikipedia.org]
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.
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Let's not get ahead of ourselves. The PS3 is actually selling quite well if you treat the Wii as an outlier. It's selling better than I expected it to, given the price point.
It always takes a year or so before a new console gets its first generation of games that actually know how to use the hardware. So why don't we give it another year before we write the PS3 off as a disaster.
Re:New Markets (Score:4, Informative)
The PS3 is selling about the same as the X360 if you align the launch dates. [vgchartz.com]
The PS2 (how many years old is that now? Seven?) is selling the same as the X360 each week. [vgchartz.com] 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.
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The interesting part is going to be finding out how much the total sales of the current crop of consoles ends up comparing to the
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Re:New Markets (Score:5, Insightful)
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.
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See, I'm not convinced the idea is to make money. What if it's just advertising for the microsoft brand?
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Genius!
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Re:New Markets (Score:5, Informative)
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.
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That being said, except for potential warranty costs, current 360's are sold at cost or at a slight profit. They haven't been under cost for a few months now, a little more tha
Re:Wait... (Score:4, Funny)
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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.
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