Microsoft sees brisk Xbox 360 sales--and big-game losses

Home and Entertainment division quarterly revenue nearly doubles as Xbox 360 installed base reaches 5 million, but division is still deep in the red.

Software colossus Microsoft today reported its earnings for its fiscal fourth quarter, which ended June 30, 2006. Overall, the tech giant saw $2.3 billion in profits on revenue of $11.8 billion. That was a 24 percent slide from the $3.7 billion in profits on revenue of $10.2 billion it enjoyed during the same quarter in 2005.

The fastest-growing sector of Microsoft's various businesses was its Server and Tools division, which saw $3.18 billion of quarterly income, an 18 percent year-on-year increase. However, another sector closer to gamers' hearts also saw massive revenue increases. Microsoft's Home and Entertainment division, which includes games, saw $1.14 billion in revenue--a 94 percent boost when compared to the $587 million the division earned in 2005. Xbox revenue--which includes sales of the original Xbox and Xbox 360--increased some $503 million, or 129 percent.

Obviously, one big reason for the massive increase in revenue was brisk sales of the Xbox 360, which, after several months of shortages, is now in ample supply. Microsoft was eager to tout the console's success, announcing that it shipped over 1.8 million Xbox 360 units during the quarter, bringing its international installed base to 5 million. Microsoft also took the opportunity to retout the fact that 60 percent of Xbox 360 owners--some three million consumers--use Xbox Live, its online gaming service.

However, despite the jump in sales, the Home & Entertainment division once again lost money--a lot of money. It posted an operating loss of $414 million for the quarter, a 106 percent increase from the previous year. The biggest reason for the increase is the fact that, as Microsoft admits, it loses a significant amount of money on each Xbox 360 sold.

"Home and Entertainment operating loss increased primarily as a result of a $682 million increase in cost of revenue primarily associated with the Xbox 360, partially offset by the revenue growth," the company said in its earnings report. "Our business model anticipates that while we currently sell Xbox 360 consoles at a negative margin, product cost reductions and the future margins on sales of games and other products will enable us to achieve a positive margin over the Xbox 360 console lifecycle."

While such predictions may reassure some, others will find it interesting that Microsoft also still loses money on the original Xbox, which was introduced back in 2001. "The first-generation Xbox consoles continue to have negative margins," said the company. Microsoft also said a 19 percent increase in headcount, in part due to its acquisition of Lionhead Studios, contributed to the division's losses.

By itself, the Home and Entertainment division saw $4.266 billion in revenue for the fiscal year, earning $1.56 billion during the October-December 2005 quarter when the Xbox 360 launched. But, as with the quarterly earnings, H&E's expenditures once again outpaced its revenue. Its operating loss jumped 160 percent from $485 million in FY2005 to $1.262 billion in FY2006.

"Home and Entertainment operating loss increased primarily as a result of a $1.64 billion increase in cost of revenue primarily as a result of the number of Xbox 360 consoles sold and higher Xbox 360 unit costs, partially offset by the revenue growth," said the company. "Our fiscal year 2006 operating loss increase was also attributable to the significant impact of Halo 2 in fiscal year 2005"--the year the game shattered sales records on the original Xbox.

Despite the massive losses of its game division, Microsoft still posted strong overall results for its 2006 fiscal year, which also ended June 30, 2006. The company reported annual revenue of $44.28 billion, an 11 percent increase over its 2005 fiscal year. Net income--that is, profit--for the year was $12.60 billion, versus $12.25 billion the previous year. The company is also planning to buy back some $20 billion in stock in a massive tender offer.

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276 comments
jaefrmbk2k
jaefrmbk2k

taller humans are so much better than shorter ones

soulknight63133
soulknight63133

chrisdojo- why are you making "no brainer" remarks of course PC games are gonna run smoother and better IT'S A PC, duhhh! But when my friends and family come on the weekends to game with me we definately don't sit around my PC to game together, THAT'S WHAT A CONSOLE IS FOR. Comparing a PC to a console is just plain stupid, strange I don't remember this comparison when NES, Sega Saturn, PS1 or PS came out. Last a checked, X360 is still a console and I can't run my online business on it either, but then again it's not SUPPOSED to. So stop comparing apples to oranges, what's next? Comparing sports cars to SUV's? Or better yet comparing Corvette's, Viper's or other street sports cars (even if modified} to the track cars of Nascar and Indy is just as bad. They will never reach the speeds of the track cars but they're NOT SUPPOSED to. So comparing them would be just as foolish. Hey I got a "no brainer" for ya, Did you know that most humans at the age of 18yrs. are usually taller than those that are 4yrs of age. QUIT trying to sound smarter than you really are on things that are "common knowledge!"

relset
relset

too many PC gamers out there :):)

crazyguy92
crazyguy92

for those of u arguing about how good or bad Halo is-herez wut i have to say (even as a SONY fan)- Halo 1 player throughout story mode iznt that great...but-the multiplayer is awesome!!! many of you say how Halo is one of the best FPS, and it is, however only inn terms of multiplayer-resistance:fall of man looks like a much more fun game throughout story mode. i can't say anything about multiplayer cuz i haven't seen it in action

Tombackman_5
Tombackman_5

Halo A Mediocre FPS. I think You Meant Definitive Or Genius. The Controls Alone Make It One Of The Best.

phSychO_AtDawn
phSychO_AtDawn

HALO MEDIOCRE!!! suuuuuurrreee If you are a FPS enthusiast you know the Halo franchise is one of the best(if not the best) FPS known to any FPS fan.And it's not only that it's a good FPS but it delivers a great,immersive storyline and awesome,I mean awesome multiplayer what else do you need! its like HL2 except without a cool physics engine.

Andron666
Andron666

Yeah but they forgot one thing. To earn money they need many good games. But I guess they are waiting for the other consoles to release first ?

beatman
beatman

It may not look like it if you don't read it carefully, but the losses are a good thing. For every system sold they lose money, but more than they loose money on the system, they earn profit on the games. Microsoft nets a profit for every game sold regardless of of developer or distributor. For every system sold they may loose approximately $30 dollars, but for every game sold they earn approximately $5. This means that by the time you buy 6 games they have broken even. Everything else after that is profit for MS. Every system sold is a guaranteed loss initially, but when they put put the right games (hell, even the wrong ones) they more than earn it back in the long run, especially from early adopters (the longer you own a system the more games you have). Don't be fooled... Every loss returns a profit!!! I would love to have their problems!!!!!!!!!!!

Shingo
Shingo

These posts dont need to be 20 lines long. Its just earnings. How much arguing can one site take.

juvinwo1
juvinwo1

They are still the big M$, they can take the hit, the 360 still rules, bottom line. but i hope NINTENDO does well too.

TheTrooperUK
TheTrooperUK

Well I have had ny 360 for a couple of months & considering that there have only been a slow trickle of titles,I would have to say that I am realy enjoying what it has to offer thus far. The online service is reason enough to justify the purchase of this console as its realy realy well thaught out. The only gripe I have is the slow trickle of titles but that said....there are alot of titles confirmed for release and they look very good so far.I personaly think that MS are going to unleash a shedload of titles during PS3 launch...as that could explain the cause of not having too much to choose from on the XB360 shelves......who knows? All is good though & I would go as far to say that I look forward to watching the other system launches and what they have to offer. Keep on gaming all.......Cheers

Tirram
Tirram

If PC graphics are being updated every six months, then tell me what is so sweet about having to pay $500 (or twice that for SLI) to have the best graphics every 6 months? Does that make any sense?

SPANNER-MAN
SPANNER-MAN

First off i have an Xbox 360, Playstation 2, and will be getting PS3 next year after the bugs have passed out of it. What some people don't realize is PC graphics will always be superior to consoles, no matter how powerful they say the consoles are. I can tell you right now that as much as sony claims that there Ps3 is the ultimate machine, well its not. Right now the ps3 graphics are old, while pc's graphic are always and constantly are being updated like twice a year. How often do you upgrade a console graphics, guess what you can't. So please just forget about compairing console graphics to pc. Pc will always win. Console are limited, while pc's are unlimited, that 's what makes them soo sweet.

bababowe
bababowe

YoYo_Bridget lol you have no clue what your talking about its funny you sit there and say that halo will go down, but yet people still love it. Now take H2 for example people love that cuz it is a strong online FPS. Hell that is why i still play it even know i have a 360 and there are good games for the 360 don't get me wrong, but there is just something about halo 2. FPS belong on console and Halo made sure that it happened see Halo 2 has had few updates for it just wondering, but how many updates/expasions has half 2 had. I already know, but it shows us that while half Life 2 is coming out with expansions and updates every i don't know lets just say 4 months Halo 2 for the console had barely any updates and while a couple of new maps, while halo had no updates. MY point is halo 2 barely had updates, still great game after coming up to its two year date, while half life 2 tons of updates have come out/ expansions just to make fans want to keep playiny it. Thats what computer games are for to make more expansions and whatever else to keep fans wanting more, but don't sit there and say FPS belong on the computer cuz it doesn't it really belongs on the console which could be the reason why Half life 2 and half life team fortress is coming to the consoles or at least the 360. Halo is still a great game even what i believe is 4 years later. Games like world of warcraft belong on the computer and hopefully will stay there. We all know world of warcraft has had tons and tons of updates just so people would play. Thats the problem people as far as consoles go buy a console for one or 2 games. I mean if there was no Mgs4 or no FF series do you think ps2 would have been that great no, but then would xbox have been if not for halo and halo 2 probably not, but now we have the 360 that has great games coming out besides Halo 3 and ones that are already out. Look at all the sony fanboys they are all happy about the ps3 cuz of MGS4 and FF, but what about other games besides ones that arn't coming out for the 360 or all systems. Yes halo 3 will sell a lot of 360s, but there are other great games coming out like gears of war. hmm isn't that a FPS.

comthitnuong
comthitnuong

maybe if they would give a price drop.....then some people like me would buty it

hi_im_derek
hi_im_derek

YoYo_Bridget, you say it could be a dngerous thing to say because of the amount of fanboys in this thread but then go on to say that Halo is a mediocre FPS at best and FPS games belong on PC. You sir, are a fanboy. (Halo was released on PC too by the way.)

Darksupersonic
Darksupersonic

XBOX360 operating loss of $414 million for the quarter P$3 operating loss will be around $2 billion for the year of 2006-2007

funky_muzic
funky_muzic

The only post worse than some fan boy saying his favorite system is better than some other system, is when some know-it-all has to say that they're all different-but-equal, and we should appreciate all the systems because it's better for the industry and stop all of the bickering. To that I say..."Nintendo rules!! Wii will rock you!"

YoYo_Bridget
YoYo_Bridget

This could be a dangerous thing for me to say, considering the sickening amount of fanboys on this thread...but you all mention Halo 2 and Halo 3. While I agree with you all, it will sell A CRAP LOAD of Xbox360's....but why? Halo is a mediocre FPS at best. Half Life 2 is a GOOD FPS. I believe Halo will go down in History as the most over-rated game of all time. Why the heck is it so popular? FPS's belong on PC! Not console! D:

enoslives7
enoslives7

microsoft has no business in the video game industry. They have lost billions with the xbox and xbox 2, and will continue to lose many more billions,especially when Sony trounces them again. They should stick to PC software. The shareholders of microsoft are getting duped !!!

patjuan
patjuan

I was going to post my usual system wars crap but thanks to Liberator72 I am not. I wish I could give you a star for your execellent post. But for some reason Gamespot does not have that type of system. Shameful Gamespot. Great post should not go unrewarded.

CrimsonJester
CrimsonJester

My favorite thing about the 360 is that I can get it to talk to my Mac and share media... but not my Windows PC LOL. Makes me laugh everytime.

vroenis
vroenis

Liberator72, your comments are among the wisest on this news-post, indeed among the entirity of comments on gamespot... however unfortunately most aren't anywhere near as perceptive as yourself in both their interpretations of the articles, and their unintelligent comments. Well-done though, not all good comments go un-noticed...

Liberator72
Liberator72

You lot make me laugh. Sony this M$ that. At he end of the day these companies are all in it for bragging rights and money. If M$ want to throw away billions with the hope of making a profit in years to come, and it benefits us as gamers, then fine, I am happy with that. And so should you be. The same goes for Sony and, to some extent, Nintendo. And I say fair play to them all for sticking at it and investing in something that we all, as a gaming community, spend our lives devoted to. At the end of the day, none of these companies are likely to go bankrupt because of their investment in gaming, and I feel it is good to see that this kind of investment is available to our hobbie (to some of us, lives). So please stop all your moaning about which is better, or the price of this and that, and be thankfull that all of the companies involved in gaming are taking major risks chucking vast amounts of cash at us all. NUFF SAID!!!!!!

jasongm
jasongm

Thats not fair, most of us cant afford a high end PC with the best super-duper graphics in the world! Most of us could only afford budget-wise PC's for work and homework. This is the reason why consoles are cheaper for the budget-wise consumer and more attractive to.

martian-bob
martian-bob

You guys keep bringing different concoles into OTHER console discussions. This article says sales are dropping, why are you bringing PS3's price into this? My god. I wish I was poor like most of you so I could kick and scream about a $600 system.

AndrewFleury
AndrewFleury

bassbomber20 There is a difference between saying that the Xbox360 has better graphics and saying that the PC is "CAPABLE" of better graphics. The truth is that since PC games must be developed for multiple generations of Graphics cards and multiple hardware they tend to be time consuming to develop. On a console you have 1 speciifc set of hardware to test on. You can use all of its bells and whistles and features. Plus the hardware in a console is specially picked to get the maximum performance of its components. You don't have to worry about is my CPU fast enough for my GPU etc.. Plus the average person does not have a super high end PC. When I upgraded my PC over a year ago...i put down a nice amount of cash to get a decent CPU + 1 gig of ram and a 350$ (at the time) video card Geforce 6600 GT. That wasn't even high end back then. The xbox 360 can produce much better looking visuals then that PC config ever did. Can PC's look better then the xbox 360: YES ! Do the current 360 gamnes look better then 80% of the PC games out there when played on the average persons computer.... NO ! So in my opinion. the xbox 360 looks better then the PC. And just like its predecesor..in a few years, the aging xbox 360 will be surpassed by the PC..until the next console generation comes out

bassbomber20
bassbomber20

You know... I really hate those of you that insist that the 360's graphics are better then a high-end PC, clearly haven't seen just what these PC's can do as far as graphics. I'd seriously like to see one of these 360's try to beat a high-end PC: ===================================================== VIDEOCARDS: Dual or Quad-SLI videocards (Overclockable) vs. 360's SINGLE ATI card which only runs at 500mhz. (Non-Overclockable) ===================================================== SYSTEM RAM: Up to 4 gigs of RAM. vs. The 360's 512 MEGS of RAM. ===================================================== SYSTEM CPU: Dual-core Cpu's and Dual-Cpu's with Dual-core systems (Overclockable) vs. The 360's Triple core Cpu running at 3.2 Ghz (Non-Overclockable) ===================================================== The 360 it couldn't touch it both in framerate or resolution. So please, before you go shooting your mouth off about how the 360 has better graphics etc, get your info straight. Is PC gaming more expensive? Maybe so maybe not. But for those of us that only want to work part-time jobs and live at home and leech off our parents money to get free internet etc. I guess it is....

juanfraino
juanfraino

thats why it bad to sell consoles at loss. becauase even if you sell... you directly depend on software sales.

Tombackman_5
Tombackman_5

I See The PS3 As This Generations Neo Geo. It's Ungodly Price Coupled With Being The Best Thing Out There (Graphics Wise) Will Allow It To Enjoy At Least Mediocre Success. I Mean Seriously, You All Saw What The PS2 Did To the Dreamcast.:( I Loved Dreamcast, and It Deserved More Time. I Believe that This Will Happen To the PS3. All The Fanboys Will Buy It An dWill Be Cool For A while, But Let's Be Realistic, 600 Bucks For A Videogame System, Couple That With Games That Are Gonna Be 70-Up, You Just can Experience True Prosperity With Those Prices. I Don't Think MS Is Scared At All Yet. They Are Putting Up Decent Numbers, They Are Just Trying to Get Consoles Out There. Let Us Not Forget That It's Got Some Good Games Now (Oblivion, GRAW) And A Good Budget Title (Table Tennis!!!!!). The Thing That Would Have Clinched This Console Would Be MS Unleashing Master Chief Before The Launch Of The PS3. we Are Talking About The Most Anticipated Game Of All Time Vs. Argubly the Bost Revered And Powerful game Console Ever. Don't Get ME Wrong, I Want A PS3. MGS4. Thats It. that Coupled With FFXIII, And Maybe Heavenly Sword And Assassin's Creed. those Are Gonna Be Their Only Hope. I Would Like To See Them MAke It, But The Only Way I'm Gonn Buy One Is If It Goes Down To About 400-450 For The Premium. Until Then Oblivion And NCAA 07 Will Do Just FIne.

evry1snice
evry1snice

I'm just amazed at how large those numbers are ... $44.28 billion, I want it, but don't know what I'd do with it.

Pharolis
Pharolis

My statement is as follows, No One here in this thread works for Either M$ or Sony. I cant understand why fanboys go out of their way to prove a pathetic point of view as to "Which Console will sell more" or " M$ has 10 million units sold and PS3 isnt even out yet" or my favorite "M$ is cheaper than the PS3, so no ones going to want to buy the PS3 and sony might fail as a compnay" Has it not occured to any of you nerds that these are Massive major corporations we are talking about. Sony has been around much longer than M$. They have other assets to fall back on, the new age Theory you tech freaks have is quite uneducated, it just really gets to me how so many people sitting at home on their computer typing in a response to a message board about financial prospects of a company., its quite entertaining to see how many of you converse as though your a part of one of the power house's. My answer to you fanboys is, stop posting messages just to attack someone who likes Sony, or M$. Let people enjoy their own free will and choose whatever console might please their desires. Because honestly everytime i come on gamespot to lookup a game for my little cousin, i see pointless chatter about "Console Wars". NERDS from all over the world rejoice, and stop bickering about technology, its not like your making profit of ranting, your actually loosing money buying consoles, unless of course you live in mommy's basement and she comes in with a new console for you every few years. Anyways I enjoyed my rant, and i hope some understand where im coming from, Thank you to all who support my view theoretically about new age Tech junk. and for those who dont, your really wasting your time speculating on which console will be better or which one will win the war. There is no war, its called marketing, and you all are suckers to it.

hotdork70minus1
hotdork70minus1

Is it just me, or does anyone else notice that all Sony has done in the last month or two is talk about the PS3's computer'esque capabilaties ? I hardly hear anything from them about their games anymore. It feels like they are backing off of the graphics and game hype and pushing crap like " the ps3 will run your microwave in 5 years " and etc... Anyone think that Sony is scared ?

faridmon
faridmon

so the only one who doesn't take losses is nintendo, thats great, and if msoft is taking losses why bother to make a console, ignorant.

balindos
balindos

YoYo_Bridget You are right games is where the money is. Now ask yourself this. How many games do you think people are going to buy after they just droped 600 on a system or 500? 1 maybe 2??? What final fantasy? The rest of the games end up on the shelf. Remember you need an extra controller too. There are a lot of developer showing signs of being scared to release on the PS3 because the price is high and they dont want to put out a game that wont sell because the customer doesnt have enough money for thier game. As a system in general we cant say anything until it releases, I want one but wont get it until they drop the price to at least 400 for the premium. If it doesnt happen then I will never get one. Do I have the money? Yes, just not worth it for playing video games.

falcon642
falcon642

Sure shows the difference between Sony and Microsoft as companies. Sony had to take out a loan of $700 million in order to begin production of the PS3. Microsoft can make the 360 at a loss, and absorb a $485 million dollar loss and not even blink. For Sony console are their lifeblood, for Microsoft they are a hobby. If the PS3 fails, Sony could be done for as a company. If the 360 completely fails it is no big deal to Microsoft. I think the console wars are a war of attrition in which the more fiscally sound company will win by grinding it out. Sony is several billion dollars in debt, Microsoft and Nintendo have several billion dollars in the bank. Hmmm, who will win that one?

MedevilDragon
MedevilDragon

This will change when games like Gears of War, Halo 3, Too Human, Mass Effect, and Alan Wake are released.

gunboyx
gunboyx

I say that ms is slow on profit I put to gether all the add ons you need to make the 360 have one ps3 is going to come out already instaled and the verdict ps3 $600 360 with add ons to be the same as ps3 $800 plus the internet $1100 yeah... I'm a bit iffy as for you pc lovers I don't feel like buying a 3000-10000 dollar computer just to play games and I hate useing the key board it hurts your hand and is not as easy with controls as a controler.Plus looking at computer games I dont see any thing thats so good they seem rely glitchy to me and unless you get a gundam title on there I don't give a damn ps2 is still getting sales because they keep cranking out games a lot of xbox games was just taken from pc.

aliens1234
aliens1234

Sidrat2004: "console games are redundant after they've been completed and they're double the price of PC software." That's rubbish. Live and marketplace, not to mention games that just have replayability (ie. Hitman BM).

XSAVAGE
XSAVAGE

Lower the price of every XBox360 game , both first party and third party to $49.99 Hell look at TD Unlimited $39.95 man thats a nice price ,im gonna get that game.

Sidrat2004
Sidrat2004

The don't need to do anything about the price at this time. Maybe drop it in time for the christmas holiday a bit. maybe 30-50 bucks but even if they don't there's still customers out there waiting for a better time to buy. As for the health of PC gaming. I say it's not as expensive as buying a console. In terms of value at least, PC games have a much higher replayability margin when they are able to be modded and added to in an unnofficial capacity. Sure you could spend a thousand bucks on a gaming PC and still have to buy games, but the games are much cheaper than next gen games and usually exactly the same in terms of graphics and playability. HOWEVER, console games are redundant after they've been completed and they're double the price of PC software. When consoles can match the modding capabilities found in PC software THAT'S when it'll hurt the PC, but until then, with an adequate gaming PC, upgrading shouldn't be necessary for about three to four years, and the price of doing that is far cheaper than buying a new console. Consoles do break down far often in my experience than a PC.

MCCHA
MCCHA

Sony's per console losses will be so bad that shareholders will cry. Maybe that was sarcasm but they will be bad.

landau492
landau492

stiop speculating please , wait until the wii and ps3 comes out

pro_
pro_

"Microsoft expected to have sold 30million about this time..." LOL Because 30 million units in just 8 months is a feasable number. What a ridiculous post.