Microsoft game division sales spike

[UPDATE 2] As quarterly revenues jump, software giant lowers sales projections for the Xbox 360. Peter Moore Q&A just added.

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Microsoft's preferred Xbox color scheme has always been heavy on the green, and that choice has never been more appropriate. Today, the software giant reported record revenues for the three months ended December 31, 2006, with a 76 percent spike in its Entertainment and Devices Division sales attributed in part to its green machine.

For the final three months of 2006, the division pulled in $2.96 billion, a leap over the $1.69 billion it posted over the same quarter in 2005, when the Xbox 360 launched. The number also represented nearly a quarter of Microsoft's $12.54 billion total revenue, which was up nearly 6 percent from the same quarter the previous year.

In its SEC filing, Microsoft said the jump in sales was driven primarily by sales of the Xbox 360 console and its new media player, Zune, as well as greater licensing of its SQL Server, Windows Server, and Visual Studio offerings. Over the course of the quarter, Microsoft said it sold around 4.4 million Xbox 360s. During the three months prior, it sold approximately 1 million of the gaming systems.

However, the Xbox business has yet to help the division turn a profit. For the quarter, the Entertainment and Devices division posted an operating loss of $289 million, slightly greater than the $286 million loss it sustained over 2005's holiday quarter. Microsoft has previously said it expects to post a profit with the division in its 2008 fiscal year, which starts in July of 2007. Overall, Microsoft's profits were down more than 25 percent for the quarter, slumping to $3.47 billion from $4.66 billion in the same quarter the previous year.

Shares of Microsoft have risen 12 percent since the start of the second quarter. Today, prior to the earnings news, the stock closed down 64 cents to $30.45.

[UPDATE] Following the release of its earnings report, Microsoft held a conference call with analysts in which it downgraded shipment projections on the Xbox 360. During the company's CES keynote address, Microsoft touted a total-systems-sold figure of 10.4 million. In a press release the next day, the company's interactive entertainment business corporate vice president Peter Moore sent out a press release stating that the company was on track to have shipped 13-15 million Xbox 360 systems by the end of June. During the conference call today, however, Microsoft CFO Chris Liddell changed that target to 12 million systems sold.

One analyst on the call suggested that the anticipated sales shortfall in the current quarter was the result of a managed decision to clear out inventory in preparation for a price drop, but Liddell didn't bite. He offered no insight into a price drop in the near future.

Additionally, Liddell articulated growth forecasts for the entertainment division's full fiscal year, expecting positive growth of 26 to 31 percent, but for the current quarter ending in March 31, 2007, he expects a revenue shortfall, quarter-on-quarter, of 15 to 25 percent.

Peter Moore

[UPDATE 2] Immediately after the call, GameSpot had a chance to speak with Xbox boss Peter Moore (whose official title is corporate vice president, Interactive Entertainment Business, Entertainment and Devices Division) who had these words to say about the recent quarter's earnings, current and upcoming strategy, as well as the entertainment division's drive to profitability.

The drop in sales expectations:
"It's the result of a number of things. There's a little bit of uncertainty in the market, and so we have taken a fiscally conservative view of the balance of the fiscal year, which is a traditionally slow period anyway, and gone down to our number of 12 million, or around 12 million. And a little bit as well, is a focus on profitability, and that is making some investment decisions differently than we normally did or would have done if we were not focused on getting this business turned around to profitability. We think we are now built to scale. We know we have all of the basic business components of the business model right: the right hardware at the right price, inventory levels coming in well, our supply chain in under control, a great games portfolio and a tremendous lineup for 2007, Xbox Live is on fire... When you think of that and you think about the future--and you know you are in good shape--you then have to start to making different investment decisions and that's what the company is doing."

On whether Microsoft makes money now on each console:
"We look at entire platform. You tend to look at the cost of what it goes out at what you are selling it at. We typically don't dive into Yes or No, but not necessarily. [Now], we're completely focused on cost reduction. That doesn't mean that even if you are breaking even [on the hardware] that you want to spend $100 per box in marketing. You've got to start thinking about getting your business under control. We've got our installed base and we feel good about critical mass. The developers and publishers are firmly on our side. The retailers feel real good about what we did for them this holiday. It's about getting the shape of the business right for profitability."

A price drop to the platform:
"We still feel good about where we are with pricing where we are right now, particularly in relation to the [PlayStation 3]. With a focus on profitability, it's a subject I have to look at very hard."

How soon the losses might level out:
"It's a commitment Robbie Bach has made to Wall Street, and that's a commitment I have to Robbie with my business, which forms the overwhelming majority of revenues that go into Entertainment and Devices."

On the success of Gears of War and Halo 3 on the way:
"I feel more than comfortable, real good about having Halo 3 still to come when I've got Gears of War operating the way it is now. The Japanese thing, it's a small data point, but a moment of pride when you've got a game of that genre...it's a Z-rated game over there so you can't even sell it openly, and yet it showed up at #7 in Japan this morning."

Where the Xbox division could have done better:
"Having some broader games is something we feel there's still work to be done. We can't be blind to the fact Nintendo has got its finger on the pulse of the more casual gamer or family gamer. It's something I admire them for doing. It's of, course, well within their DNA. It's something that as we get into the out-years of a lifecycle, it's something we've got to focus on more and believe me, we are doing that.

In the rush to profitability, are changes to leadership in the offing:
The only change will be if we don't hit profitability...then we might see some changes.

Discussion

274 comments
nev70
nev70

Maquis_UK thanks for your concern , but dont worry they spend most of there gaming time on thier DS with new super mario bros ( 3+ ) which i also love very much as for foul language i'd get moderated if i spoke my mind , condersending BS deserves it , it doesent make you look any brighter or justifys your narrow minded attitude its still ignorance and yes Gears was the best title of last year ( out of about 35 I PLAYED across ALL FORMATS ) THANKS AGAIN

Maquis_UK
Maquis_UK

nev70, you come off a bit biased too you know! i hate m$ because of years and years of bloatware, unfulfilled promises (see Zune and the Plays-For-Sure DRM debacle as a recent example), questionable ethics (France recently joined a long list of countries refusing Windows as it does not wish to be held to ransom by one software developer), outright theft (cf. Apple and Linux OS interfaces), the forced inclusion of non OS-related parts into their OSes (the IE court-cases).. i could go on. If you took your head out of the sand, you might see that there is a lot more going on than "hating m$ because they're successful and rich" lol (working on that premise, i would need to throw away all my Beatles cds, and my Stars Wars dvds..) .."Linux this Linux that OH youre so alternative"...if it lacks cool then why do all the screenshots I've seen of Vista mimic its look and feel? Also I'm happy your kids are enjoying Zelda (it's very enjoyable for all ages, after all!) but for gods sake don't let 'em play Red Steel (very very violent) or COD3 or Resident Evil Chronicles or Sadness or Mortal Kombat.. those games are not for 8yr olds (neither is Zelda actually, you have broken the law by allowing your 8yr old to play a game rated *12*). your opinion of Nintendo being "for the kids" is about 8 years old too. ( you see how i questioned your opinion too, only without recourse to foul language? "ignorant person", eh? ..tsk, parents these days.. )

nev70
nev70

Maquis_UK funhabbit said: "The Gates Empire marches onto World domination.......... Can Sony or Nintendo Stop this evil?" well said! if m$ had their way we would be eating m$ monopoly breakfast cereals, wearing m$ monopoly trainers and using m$ monopoly mobile I just love reading the deluded S**t this Nintendo fanboy posts hes such an ignorant person he thinks any game thats on the MS console is crap cause guess what he hates MS Why because he cant stand how sucessful they are and how they obviously make so much money. You cant reason with people like this thier just so bitter and messed up its funny how they live in the west and accept all other consumer choice ect , i dont think they realize how business works there just so wet .Linux this Linux that owe your just so alternative how cool you are for rejecting ANYTHING MS puts out .The nintendo Wii is a great machine but thank god for the 360 with more adult content e.g. gears of war i'd be doing my nut if i just had a Wii and nothing else but Zelda but my 8 year olds love it .This Bill Gates gave more to fight Aids than the US govt did last year would you prefer he gave nothing ? owe and by the way the MOST COST EFFECTIVE CAUSE TO GIVE TO IS AIDS $ FOR $ do to all the knock on effects this illness brings, how do i know this well lets just say some very clever experts spent alot of time studying it and came out with some interesting finds ( i believe the report came out last quarter 06).Your head must be really messed up if you feel you have to slander anyone that gives to good causes ? how many people with aids willl be helped by that money ? and you talk about MS questionable ethics .

Agelu
Agelu

...have you heard Sony? MS is taking increased profits like Nintendo. Let the fanboys cry...

MrSickVisionz
MrSickVisionz

Systemafunk "So he takes 90 billion away from the world, and gives 31 billion of it back. Philanthropists are just so awesome, they can make themselves look like heroes!" - TAKES? You sound silly. MS takes nothing, they sell a product and people buy it. You seem to just hate the very concept of having markets and an economy in general. You're not making any sense at all. I don't know what you're advocating when you suggest that anyone selling anything is wrong. How would people survive? How could a government./country be able to provide for its citizens without a market or an economy? How would citizens be able to provide for themselves? ------ "For the final three months of 2006, the division pulled in $2.96 billion" You guys gotta learn the differeence between revenue and profit. Revenue is simply you had cash inflows of 2.96 billion. Cash outflows (ie COST OF GOODS SOLD) isn't any part of he equation. Its heart braking to see people saying, things like, "whoa, 2.96 billion profit, thats alot of money," PAY ATTENTION IN ECONOMICS KIDDES!!!!!! We live in a capitalistic society... its a good idea to understand the basics of capital.

horioricorious
horioricorious

THANK YOU! thank you god! you are wonderful indeed. its good to see that MOST consumers have their wit intact. and its especially good to see this company in the position it is in. go figure, better marketing, planning, timing, etc. have paid off for microsoft in this video gaming department. they do business good, so they are evil. if you had your business, you would want others to take the markets, and play nice, and let them all grow, while you stay small and comparatively worthless. that is what i am hearing. adressing your logic is a waste of time, and even doing this brings me down near to your unenlightened level. to sum up the master argument that you all partake in: some would vote for the ps3, if for no other reason, than beacuase it has POTENTIAL!!! :) YAY! others, with their sickening, disgusting logic, would get the 360 because it.. has GAMES. for f'ing christ's sake.:P morbid creatures that they are...

Maquis_UK
Maquis_UK

funhabbit said: "The Gates Empire marches onto World domination.......... Can Sony or Nintendo Stop this evil?" well said! if m$ had their way we would be eating m$ monopoly breakfast cereals, wearing m$ monopoly trainers and using m$ monopoly mobile gadgets. yuk! "we are the Borg.. you will adapt to service us". and to those who cry for the canonisation of saint bully (oops billy), consider that he does all that charity donating AT NO NOTICEABLE COST TO HIMSELF OR HIS EMPIRE merely so he can tell the world how great a person he is, while many different governments and ruling bodies worldwide seek to limit his questionable ethics - such as the forcing of internet Explorer, m$ media player, snoopware and other "features" on the poor n00bs who believe there is no world outside windows.

Bear-Max
Bear-Max

Quote: Systemafunk "So he takes 90 billion away from the world, and gives 31 billion of it back. Philanthropists are just so awesome, they can make themselves look like heroes!" Give a third of your life savings to charity, and then you'll be qualified to make a comment about the matter.

funhabbit
funhabbit

The Gates Empire marches onto World domination.......... Can Sony or Nintendo Stop this evil? Find out on next weeks episode

ianstone01
ianstone01

I have to agree with (Zumafire). You nailed that Point!!!!!!!!!!!

Zumafire
Zumafire

Jackfatal------How silly can you be to think that Gamespot is bias towards the 360?? If there is one thing I know. It's that the 360 is one hell of a gaming machine. Ofcourse there are going to be a lot of stories about the 360. Why don't you count all the stories related to what systems and tell us all the results. I would do it but It seems like a job for a YA-YA like yourself..

Zumafire
Zumafire

Haters can say all they want.. but to those that own a 360... You all know how sweet it is. How can you hate MS when they create such an awesome gaming machine. The 3-way console war is freaking great! Battle on!!

jackfatal
jackfatal

y gamespot posting mostly if not only x360 news? there is a lot of news about ps3 and sony but they aren't posting it!! id u dont beleive me then check out games4gamers.com!!!!!!!! shame on u gamespot! i think now its clear that microsoft payed u for this!!!! at least i hope they payed u enough!!!

Jebril
Jebril

It's because they were losing a lot of money on each console said in the begining. (150 or so dollars) So that set them a bit back but I'm sure and postive that the gaming division of Micrsoft will set great profits for 2007 especially with the amount of content were getting this year.

bossjimbob
bossjimbob

Quote: Systemafunk "So he takes 90 billion away from the world, and gives 31 billion of it back. Philanthropists are just so awesome, they can make themselves look like heroes!" 1) You have to earn money before you can donate it to a cause. He runs a very successful business. Why hate him for that? What kind of OS are you running, anyway? 2) How much have you donated? How much have you volunteered? People love to complain rather than recognize the good in this world. Lighten up.

runbmp
runbmp

Humorguy_basic " And of course, not a word about windows gaming..........! Goodbye PC games, I truly loved you.....! " That's got to be the most idiotic comment i've seen in years... You obviously have never played in this niche market. WoW and many FPS still remain on pc... why don't you please look up crysis for the pc and something called direct x 10.... Microsoft's goal is LIVE, and they want to synch it up with cell phone gaming, pc and console... where the hell have you been?!? I

Humorguy_basic
Humorguy_basic

And of course, not a word about windows gaming..........! :( Goodbye PC games, I truly loved you.....!

Stellarbomb
Stellarbomb

Karttikeya- "Do you guys even read? They made $2.96 billion dollars in their entertainment, but lost $289 million in operating costs. They made profit this fiscal year, but they have yet to dig themselves out of original Xbox's hole." www.google.com -> define:revenue Yes, MS revenue was $2.96b, but profit was NEGATIVE $289m. This is not a hole from XBOX1, this is revenue vs. cost of the 2007 fiscal year. Not to mention, the loss is greater than last year. So turns out, youre a retard

Karttikeya
Karttikeya

Do you guys even read? They made $2.96 billion dollars in their entertainment, but lost $289 million in operating costs. They made profit this fiscal year, but they have yet to dig themselves out of original Xbox's hole.

ragrdoll21
ragrdoll21

289 million in losses.....damn maybe Nitty was smart!:(

ObiKKa
ObiKKa

In replying to GrimBee, Fanton, & maybe some others, I dunno, don't worry about Microsoft limiting the creativity of the games by just buying out the developers. As somebody here said you know that MS has released their XNA Express toolkit primarily for the indie devs - very good on that front. Plus, Microsoft hasn't been buying out too many companies - in fact they've only bought out a few developers over time some years ago like Bungie, and Ensemble Studios, while they've been, & are establishing strong relationships with even lots more developers (ie. making contracts) to make games exclusively for their Xbox platform(s) & the PC (Windows OSes). Also remember the critical key here: there are so many indie developers - just check out the annual indie game of the year award categories to see what I'm talking about, casual game developers, and frighteningly so many commercial game developers & new low-key publishers. I've been noticing lots of brand new game developers with new logo names that we'd obviously have never heard of before, so that we know, & presume many of them to be fresh up-starts.

edhc44
edhc44

@ DragonXNIK I wouldn't worry about that. The only system for japanese RPG's last gen was the PS2. Yeah, the GC had a Tales and a couple of other interesting games, but that was all. I don't know what will happen now with the PS3 turning out to be what it is and all, the Wii being "unorthodox" and the 360 just not being a wise choice to develop J-RPG's for, but one thing I know is that the guys who made all those sweet RPG's last gen won't be unemployed this generation. Although the FPS genre has taken the throne of favorite genre in the US over the past few years, RPG's are still the favorite in Japan. Be faithful, those guys will figure something out. PS: Don't forget to include Lost Odyssey on that "list".

brotherscampos
brotherscampos

My X360 Vs my PS3, is a loser my PS3 is best console but the X 360 have a awesome tittles for that Everyone needs this console, for be a great gamers

manolobrown2
manolobrown2

I think MS is making all the right moves, so far. It has a great system, great online component, and a great catalog of games plus many more to come!

bcolter
bcolter

Systemafunk "So he takes 90 billion away from the world, and gives 31 billion of it back. Philanthropists are just so awesome, they can make themselves look like heroes! " Ah... But from the RICH to the POOR

Get_Shorty
Get_Shorty

XBox is going to be going kiddie soon

datniccah187
datniccah187

Microsoft is doing big things, definately its getting my money. I'm not complaining though because they make a good product.

frogman666
frogman666

Where the Xbox division could have done better: "Having some broader games is something we feel there's still work to be done. We can't be blind to the fact Nintendo has got its finger on the pulse of the more casual gamer or family gamer. It's something I admire them for doing. It's of, course, well within their DNA. It's something that as we get into the out-years of a lifecycle, it's something we've got to focus on more and believe me, we are doing that." great if all the next round of consoles are going to be like the wee wii I wont own any of them playing games for me is relax time not exercise time I get plenty of exercise at work

Yuck_Too
Yuck_Too

--Systemafunk -- Aside from your numbers about how much he is worth (90 billion) being totally wrong...lets look at it this way. He is worth about $40 billion...so he has actually donated over 75% of everything he owns. How much did you give this year? Better still...lets compare how much he has donated to say the amount the top 100 richest people in the world donated...

Systemafunk
Systemafunk

Bill and Melinda Gates donated 5 billion dollars to charity. http://news.bbc.co.uk/2/hi/business/360770.stm The Gates Foundation has, at this time, an endowment of 31.9 billion dollars (including the first portion of Warren Buffet's multi-billion dollar donation). http://www.gatesfoundation.org/MediaCenter/FactSheet/ Say what you will about Xbox 360 or MS in general, but you can't deny that Bill Gates is doing good in this world. So he takes 90 billion away from the world, and gives 31 billion of it back. Philanthropists are just so awesome, they can make themselves look like heroes!

Digital-Hero
Digital-Hero

Nintendo > MS > Sony. That is looking like the trend going into 2008.

Bret_Hart
Bret_Hart

My God they're full of themselves.

Systemafunk
Systemafunk

@Mr_Saturn26 "...MS had and always had problems, i dont like MS at all, thier products suck,..." Please elaborate? Otherwise, close your browser, shut down your computer, reformat your system, install Linux / Firefox / OpenOffice and come back and complain. Or, go buy a Mac. Until then you're not doing much about your claims there. How do you know he/she wasn't using Linux or a Mac? You don't. For that matter, Macs can have internet explorer. Im going to go out on a limb here and guess that if Mr_Saturn26 hates MS that much, he/she probably uses as few MS products as possible.

nu-animal
nu-animal

I'm impressed by how not-ful-of-bsPeter Moore's comments are. But I find it funny that its written: "We still feel good about where we are with pricing where we are right now, particularly in relation to the [PlayStation 3]. With a focus on profitability, it's a subject I have to look at very hard." (Peter Moore)" Why the inaudible interpretation [ ]'s? Did Petey struggle to utter the words "PS3" or "PlayStation 3"? Hahahaha - maybe its an offensive word if you're working for Microsoft. Or maybe he called it something else...?

makemeweak
makemeweak

Sounds like they are really on top of things.

altoids
altoids

way to score a nice chat with Peter Moore Gamespot!

Dante565
Dante565

Interesting story. I think Microsoft is really thinking hard about the future of its consoles and the games its going to be making to attract even more gamers attention. I think there doing very well and I hope they keep up the good work.

Fanton
Fanton

Yuck_Foo: Mad props, man. Thanks a lot for the link, really appreciated.

HighlyToxic
HighlyToxic

How can the 360 fail when it's backed by the world's richest man? It's a hobby for him. Any losses are just tax write-offs. Gotta spend the money somehow. Might as well benefit us gamers.