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XBox (Games) Businesses The Almighty Buck

Xbox Division Posts Loss of $1.9 Billion 150

Posted by Zonk
from the quite-a-few-boxen dept.
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."
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Xbox Division Posts Loss of $1.9 Billion

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  • by typobox43 (677545) <typobox43@gmail.com> on Friday July 20, 2007 @01:00PM (#19928947) Homepage

    Overall, Microsoft announced revenues of $13.37 billion for the quarter and $51.12 billion for the full year, up 13 percent and 15 percent, respectively.
    Microsoft's trying to fit in with the "cool kids" now.
  • Being first to market with an unstable platforms seems to be NOT how to run a business. Taking notes....
    • by Broken scope (973885) on Friday July 20, 2007 @01:04PM (#19929015) Homepage
      Actually its funny, but launch boxes appear not to have as many problems as boxes made in 2006.
      • Erm, considering how much noise there was of launch 360s failing. And considering that of my friends with Xbox 360s, the two that have broken, one was a launch box, the other was second wave made in December 05.

        So while it's just anecdotal evidence, that's more then you have.
        • by Broken scope (973885) on Friday July 20, 2007 @05:05PM (#19932691) Homepage
          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.
          • by rilister (316428)
            as someone who works with manufacturing, that pattern is not very unusual. You test your design validation units before release and find that they work. So you're ready to ship product, and the sample test of the first units seem ok too. So you ship.

            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
      • by MaineCoon (12585)
        My launch 360 just died with the Red Ring of Death. While I didn't play it regularly, I wasn't playing it that much when it started to fail, compared to when, say, Dead Rising and Viva Pinata came out. Hopefully it'll be repaired and back before Bioshock comes out.
      • Hardly new. Who remembers the Iomega Zip drive 'Click of Death'?

        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.
    • by jma05 (897351) on Friday July 20, 2007 @01:12PM (#19929121)
      Why not? It worked with Windows.
  • Let's go easy on the rounding! 1.89 billion (as mentioned in the summary) and 1.9 billion is a difference of $10,000,000 :)
    • and US10M$ is pcoket change to Bill Gates...so the difference is meaningless and the rouding justified.
    • by LKM (227954)
      Most people read 1.89 as "1.8something," so 1.9 is closer to reality. It's like all those things that cost 9.99.
  • Lots of Numbers (Score:4, Interesting)

    by Alaren (682568) on Friday July 20, 2007 @01:01PM (#19928965)

    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?"

    I know businesses have to do this song-and-dance for shareholders and the IRS and all. It's also quite clear that posting a $1 billion loss on the warranties now does not mean MS has actually spent or will ever actually spend $1 billion on their replacement plan. There's a lot of fancy numbers being tossed around and frankly I don't know which ones represent cash and which ones represent accounting magic.

    So why not some of your accountants out there answer me this very simple question: based on how much real, actual money MS has spent, over the life of the XBox and the XBox360, on getting into the console business, and based on how much real, actual money they've earned by being in the console business, has the total "console project" broken even yet?

    • Re:Lots of Numbers (Score:5, Insightful)

      by pete-classic (75983) <hutnick@gmail.com> on Friday July 20, 2007 @01:11PM (#19929113) Homepage Journal

      I don't know which ones represent cash and which ones represent accounting magic.


      I think it's adorable that you think those are two different things.

      -Peter
      • Accounting Magic (Score:2, Interesting)

        by Anonymous Coward

        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

        • First, I'd like to encourage you to get an account and post under it; this post is well-reasoned and interesting, but it's sheer chance I was bored enough to set my threshhold low enough to see +0 posts.

          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
    • >as sales of the Zune... ...helped push revenues higher.

      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)

        by EggyToast (858951) on Friday July 20, 2007 @01:42PM (#19929569) Homepage
        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.
    • Re: (Score:3, Insightful)

      by BrerBear (8338)

      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.

      • Re: (Score:2, Informative)

        by ergo98 (9391)

        It's Zonk-atorializing in action.

        Microsoft's SEC filing [edgar-online.com] says--

        EDD revenue increased primarily due to increased Xbox 360 console sales, Zune sales, and increased Xbox accessories and video game sales. We shipped 6.6 million Xbox 360 consoles during fiscal year 2007 as compared to 5.0 million consoles during fiscal year 2006. Xbox and PC game revenue increased $650 million or 19% as a result of the increased number of Xbox 360 platform sales, partially offset by decreased sales of the first generation Xbox c

        • by BrerBear (8338)

          Microsoft's SEC filing says--
          Yes, the numbers are in the SEC filing. It's the "Overall the Entertainment division did well" commentary that is Zonk's editorial.

          It's a strange definition of "well".
    • Re:Lots of Numbers (Score:5, Interesting)

      by AKAImBatman (238306) * <akaimbatmanNO@SPAMgmail.com> on Friday July 20, 2007 @01:29PM (#19929391) Homepage Journal

      I know businesses have to do this song-and-dance for shareholders and the IRS and all.

      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.
    • Re: (Score:3, Interesting)

      by tbannist (230135)
      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.

      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
      • Re: (Score:3, Informative)

        by tbannist (230135)
        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.
    • Revenue is money in, Profit is money in minus money out. You can make a product for $1000 and sell it for $100. If you sell 1000 of them, you have a revenue of $100,000. However, you have lost $900,000 in terms of profit.
  • 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.
    • by powerlord (28156)
      I'm glad that MS is trying to protect their user base, but don't for a minute think they actually care about you (any more than Sony or Nintendo).

      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
  • Clearly a Sign (Score:4, Interesting)

    by RevHawk (855772) on Friday July 20, 2007 @01:23PM (#19929273)
    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...
    • Re: (Score:2, Insightful)

      by Defector!!! (49874)
      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, wha
      • I was born in 1975.
        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
        • Well, here's my story.

          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
    • by Chirs (87576)
      The word you're looking for is "faze"...
  • That's misleading... (Score:5, Informative)

    by imstanny (722685) on Friday July 20, 2007 @01:56PM (#19929781)
    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.
    • From what I understand it's not a quality control problem, it's a design defect. One of the heat sinks inside the unit is not large enough. If you hunt around for stories of people who have had their systems repaired due to the three red circles problem you'll see that they get a system back with a much larger heatsink on one of the components.
  • Family... hmmmm...
    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.
    • by toolie (22684)
      Incorrect. If you read any business news at all you will see one of the biggest problems shareholders face with any corporation is the fact that executive pay/bonuses are NOT related to their company/divisions performance. Look at any airline, tech companies, etc for examples.
  • Bizzare (Score:2, Insightful)

    by mgabrys_sf (951552)
    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.
  • ...completely different.

    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
    • by Talgrath (1061686)
      The Genesis also was sold at a profit; unlike the X-Box 360; it was a different time of course, but every console sold meant profit in Sega's pocket. What's more, Sega immediately had a great lineup of games, the 360 is a year in and they've only got two games that aren't also going to the PS3 or PC that I would want to play, Mass Effect and Halo 3 (note that Gears of War has been announced for the PC); though my bet is that both of those will hit the PC in the next year or two. Lost Odyssey might be good
      • by Torodung (31985)

        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

    • But remember... Genesis did what Nintendon't. Nowadays, Nintendoes something original, and the others don't.
  • It's shocking... (Score:4, Insightful)

    by AlphaOne (209575) on Friday July 20, 2007 @03:32PM (#19931281)
    It's shocking, simply shocking, that Microsoft's hardware products follow the same methodology as their software products: ship it now, fix it later.
    • by Torodung (31985)
      ...but not surprising.

      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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