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Microsoft says Xbox division will make profit in 2008

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DVDBack23 @ May 04, 2007 14:29 | 13 comments

According to an interview with eWeek, Robbie Bach, the president of Microsoft's entertainment and devices division, has said that the company's console business will begin making a profit starting next year.

"It's a business that will be profitable next year. We'll make money next year and that will be the first time, which is pretty exciting," he said.

This interview comes on the heels of last weeks announcement that falling Xbox 360 sales had led to a 21 percent drop in revenue for the entertainment and devices division in the first quarter 2007. Although the losses were less than the comparable period of 2006, they were still a hefty $315 million USD.

Bach noted that revenue from games, Xbox Live, and accesory sales would help contribute to bringing the console production back int profitability.

"Xbox is the hardest piece of consumer electronics hardware to produce in the world, no debate," he said, admitting that "costs are a little higher than we'd like".

Microsoft doesn't expect to make a profit on hardware alone, but "we'll probably be gross margin neutral on that over the life cycle of the product, and try to break even on that".

Bach also added that he feels production costs wont be an issue due to increaded sales in the rest of the business. "Right now we're doing a pretty good job. We're humming pretty well in the business. Game attach rate [is at the] highest level in history for a game console at this stage in the life cycle. The same with our peripheral attach rate. Xbox Live has over 6 million members. The pieces are in place to drive the proverbial billion dollars."

Bach, during the interview, also took time to coment on the competition, the Nintendo Wii and the Sony PlayStation 3.

"I think Nintendo and Microsoft are clearly in the driver's seat on what's happening in this generation," he said. "Sony I think has some real challenges. They've got a pricing problem, they have a cost problem, they have a content problem, and they don't have an online service."

Source:

GI.biz

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Comments

Comment by: fgamer (May 04, 2007 16:01)

"I think Nintendo and Microsoft are clearly in the driver's seat on what's happening in this generation," he said. "Sony I think has some real challenges. They've got a pricing problem, they have a cost problem, they have a content problem, and they don't have an online service."

LOL...this is so true...I love you dear ol Microsoft!

Comment by: NexGen76 (May 04, 2007 16:33)

WTF...LOL this is nothing but hopes & wishes they just reported that they was losing money but know say they going to make money next year...lol & i thought Sony say dumb things.

This interview comes on the heels of last weeks announcement that falling Xbox 360 sales had led to a 21 percent drop in revenue for the entertainment and devices division in the first quarter 2007. Although the losses were less than the comparable period of 2006, they were still a hefty $315 million USD.

Its no secret that the fan boy rush for the 360 has dried up(really wasn't one)M$ been stuck between 10-11 million console for a while now.How can they be in the driver set when M$ sales in UK & Japan has been horrible Sony will catch M$ in no time.

Comment by: rkbauer (May 04, 2007 18:57)

You have a severe logic error, to the person above me. Sony is selling consoles at about the same rate as Microsoft, and Xbox 360 was released a year and a half ago. 6 months into its lifespan, the 360 had sold around 5-6 Million Consoles. Sony has yet to break 3 Million.

And as a note, The 360 sales are not horrible in the UK. They are selling more 360s in Europe than PS3s, and for now, Wiis. While the 360 sales are bad in Japan, the PS3 is not doing well at all over there either. Wii is dominating PS3 in Japan. And also, while Japan is the second largest gaming area in the world, it is a very far off second, with the USA having about 10 times as many gamers. If you can control the USA, and Europe, you win.

I think that it is pretty safe to assume with the sales so far, that either Xbox 360, or Wii, (probably Wii) will win this generation, with the PS3 coming in last.

Comment by: hughjars (May 04, 2007 18:59)

The rumour is that Microsoft are right now in profit on each XBox 360 they make.
A report on what happened months ago is no proof of how things are today or how they will be next year.

The truth is Microsoft are doing very well right now.

Microsoft continue to have some of the biggest and deepest pockets in the commercial world.

$315 million US is not exactly 'nothing' but then it isn't quite the huge deal you obviously want it to be either; not when their quarterly net profits are nearly $5 billion US.

Quote:
April 27, 2007

Microsoft reported quarterly sales and profits that surpassed Wall Street’s expectations yesterday, suggesting that early sales of its new Windows Vista operating system were off to a solid start.

The company, which is the world’s largest software maker, also delivered an outlook for its 2008 fiscal year, which begins in July, in the upper range of analysts’ projections. Microsoft said that revenue in fiscal 2008 should reach $56.5 billion to $57.5 billion, and earnings were expected to be $1.68 to $1.72 a share.

Industry analysts had been concerned that Microsoft might deliver an unsettling surprise in the quarterly report if Vista sales had been sluggish or if spending was spiking as the company struggled to catch up to Google in Internet services.

But the strong quarterly results and encouraging guidance for the next year eased those worries. “This brought a sigh of relief,” said Sarah Friar, an analyst for Goldman Sachs.

The results were announced after the Nasdaq’s 4 p.m. close. In after-hours trading, Microsoft’s shares rose $1.20 a share, or 4.1 percent, to $30.30 a share by 7:15 p.m., after rising 11 cents, to $29.10 a share, in regular trading.

Microsoft’s online services business remained a problem. Revenue in that division rose 11 percent, to $623 million, and losses rose sharply, to $200 million.

Yet the quarterly results point to the underlying strength and profitability of the main engines of the company’s business — Windows desktop operating systems, Office productivity programs and, increasingly, Microsoft’s server software, used in corporate data centers.

“The core business is doing very well,” said Charles DiBona, an analyst at Sanford C. Bernstein & Company.

Revenue for the quarter was $14.40 billion, an increase of 32 percent from the year-earlier quarter. Quarterly sales were about $500 million higher than the Wall Street consensus, compiled by Thomson Financial.

Net profit was $4.93 billion, or 65 percent higher than a year ago. Earnings were 50 cents a share. Excluding a 2 cent gain from tax benefits and 1 cent charge for legal expenses, the earnings were 49 cents a share. That was 3 cents a share higher than analysts’ estimates.

Revenue and profits in the quarter were inflated, as expected, by coupon programs Microsoft introduced last year when Windows Vista and Office 2007 were delayed and missed the year-end holiday season in the consumer market. The new products did not ship until the end of January.

http://www.nytimes.com/2007/04/27/techno...4ada&ei=5087%0A

Comment by: DVDBack23 (May 04, 2007 19:09)

Quote:
The rumour is that Microsoft are right now in profit on each XBox 360 they make.
A report on what happened months ago is no proof of how things are today or how they will be next year.

The truth is Microsoft are doing very well right now.

Microsoft continue to have some of the biggest and deepest pockets in the commercial world.

$315 million US is not exactly 'nothing' but then it isn't quite the huge deal you obviously want it to be either; not when their quarterly net profits are nearly $5 billion US.

That is true, but this article was simply for ONE division of Microsoft's empire ;)

Comment by: borhan9 (May 04, 2007 20:04)

Looks like they have a lot of things to iron out about the new console. They should have called the xbox360 the beta version by the way this article sounds.

Comment by: rkbauer (May 04, 2007 22:59)

Wait a second.. What does that have to with this article? I see nothing talking about the bugs of the 360's launch. It had bugs in the first few months of production. Those have long since been figured out though.

Comment by: ZippyDSM (May 04, 2007 23:02)

Now that they re making a profit its time to fix the bloody thing >>
bah fixed 360s wont be out till xmas I think...

Comment by: fgamer (May 05, 2007 07:49)

Looks to me like Microsoft will be making a profit off the 360 but Sony won't be making any profit off of the PS3.

Comment by: akaangus (May 07, 2007 01:39)

Quote:
"Xbox is the hardest piece of consumer electronics hardware to produce in the world, no debate," he said,

I'd debate that. PS3 is clearly harder to produce, considering the delays and cost overruns. If the 360 was sooooooo hard to produce, then its manufacturing would NOT be handled by Foxxconn and Asus, it would have to be NASA or something ;) I'd even be willing to wager that the PSP would be harder to produce than the boxy, wasted-space-filled 360 filled with pretty much generic computer parts.

Also, a 21% drop in quarterly results is pretty good, considering the previous quarter had very strong holiday season sales for every system.

Comment by: ZippyDSM (May 07, 2007 02:58)

akaangus
for a time they did have a hard time at manufacturing them :X
but really..its a mini PC with iffy heat sinks/fans which has lead to problems for them.

I hope they don't screw up the "new line" of 360s....

Comment by: gotpitino (May 07, 2007 09:59)

Why is it that every where I go, be it Best Buy, EB Games, Wal-Mart, etc., why is the PS3 they have always off? I've never even been able to try one out to see if it's any good. I had a friend that bought one and said it was junk. Needless to say he took his back and got a 360.

Comment by: akaangus (May 07, 2007 10:23)

ZIppyDSM I'm sure at one point they were hard to make but now that it has been pawned off to 2nd party China manufacturers (actually, I think they always were, correct me if I'm wrong), it really shouldn't be too hard to get right.

The Mac Mini and especially the Apple TV are also mini computers with almost NO heat issues, because they are well-designed. The Xbox 360, not so much. I'm pretty sure that with a better video card the Core 2 Dual Mac Mini could smoke the 360 in specs.