Microsoft's game division suffers $1.89B shortfall

Entertainment and Devices Division sees a 47 percent increase in its annual operating loss, thanks to $1.06 billion in warranty-extension costs and slowing 360 sales.

Last July, Robbie Bach, president of Microsoft's Entertainment and Devices division, promised that his department would be profitable during the company's 2008 fiscal year. However, he also warned that, like the years before it, the EDD--as the department is referred to in Microsoft's financial documentation--would suffer a loss during the software giant's 2007 fiscal year, which ended June 30.

Given Bach's warning, today's announcement that the EDD is still in the red didn't surprise anyone. For the year, the division suffered a $1.89 billion operating loss, a 47 percent increase from the $1.28 billion hit the division took the prior year. The shortfall came despite $6.08 billion in annual revenue, 28 percent above the $4.76 billion it took in the year prior.

Microsoft shipped--not sold--6.6 million 360s during its fiscal 2007, up from 5 million FY2006--when it wasn't on sale for nearly half the year. Its current installed base stands 11.6 million strong, the most of any of the latest crop of consoles. However, the company only shipped 0.7 million units in the April-June quarter, versus 1.8 million during the same period in 2006.

Besides decreased Xbox 360 console sales, the EDD's fourth quarter suffered a catastrophic blow when then-Corporate Vice President Peter Moore announced a three-year extension of the Xbox 360 manufacturer's warranty. Today, the company confirmed it took a $1.06 billion charge as a result of the unprecedented move, causing operating losses for the quarter to tally a massive $1.2 billion--a staggering 183 percent year-on-year increase. The company said the loss was lessened somewhat by "decreased Xbox 360 console manufacturing costs" and "increased Xbox accessories and video game sales."

Among the grim financial figures were a few nuggets of interesting news. Apparently the EDD is beefing up its staff, since the company's report says that "headcount-related costs increased 15 percent [for the year], driven by a 9 percent increase in headcount and an increase in salaries and benefits for existing headcount, partially offset by a decrease in stock-based compensation expense." The company also said that for the year "Zune, consumer hardware and software, and TV platforms revenue increased $539 million, or 65 percent."

But while Microsoft's game-industry efforts proved costly, they were more than made up for by the company's other businesses. Despite the $1.06 billion 360 warranty charge, the company saw a $3.04 billion net income on $13.37 billion in revenue during its fourth fiscal quarter, 11 percent higher than the same period in 2006. For the full fiscal year, the company saw $14.7 billion of net income on revenues of $51.12 billion, a 15 percent increase over the prior fiscal year.

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798 comments
Wings_008
Wings_008

they lost some money, but they gained a lot of fans including me

speedofsloth
speedofsloth

[This message was deleted at the request of the original poster]

bboycookie2
bboycookie2

so they lost some money and gained more money? HAHAHA thats awesome.

DemonSlayer2063
DemonSlayer2063

I honestly don't think this is going to pose that big a threat to Microsoft. The 360 will begin to pick up even more steam as time wears on, especially with high-profile games such as Halo 3 being launched exclusively for the console. The 360 is the console with the best bang for the buck, without a shadow of a doubt. And given Halo 3 already has sold over a million pre-orders alone, I don't think Microsoft has anything to worry about. The 3-year warranty also gives buyers better assurance, so it will sell.

McHenry2
McHenry2

HXCDEW, from a business point of view the 360 might be a failure now, MS can use this as tax cuts you know, and only nintendo is proving profitable, and their stock shows it, the fact is that the 360 has paved its way into the game market, and will be there generations to come is worth its losses at first, being that microsoft can take this beating, and because the next generation of console gaming is at least 5 years away, the 360 will have enough time to prove itself profitable

Echonian
Echonian

I agree with thetealcaptain. I truly do not think this is a big deal, most of the games coming out for the 360 so far, while good, were not outstanding. Gears of War is the only great one out so far, but there are many other great ones coming out soon, such as Bioshock, Mass Effect, Halo 3, UT3, and more. With only 1 great game out so far, and 4+ coming out in the near future, Microsoft is sure to see sales increase.

thetealcaptain
thetealcaptain

I believe that next year will be better, there weren't too many "big" releases for the 360 over the past year. Most are coming out this year, developers have had more time to work with the console, and are able to take advantage of the system and pump out better games. This is true with all consoles, it takes a couple years to get the things up and running. Think of all the costs that go into research, manufacturing, parts, etc. It takes awhile to recoup those costs, it will take about another year to make the 360 a money making juggernaut.

The_Third_Place
The_Third_Place

I think this site is made up of 6 year olds that think they know everything about all the consoles...

FatCat360
FatCat360

If people are saying that Xbox will make money in the future thats BS because if you are waiting to get a Xbox it would only be for Halo. They will continue to lose money.

ColdfireTrilogy
ColdfireTrilogy

So now its about even once again, Sony didn't sell as many consoles. MS sold more consoles but lost 2 billion dollars in the process. Lets see how this winter does for our two favorite consoles. :P

DeadBullet
DeadBullet

To the STUPID sony fanboys that think MS lost that money because nobody is buying XBOX 360's, do you ignorants know that every XBOX 360 they make, they lose $100 cause they sell it cheaper than it costs to them building it, they know they are gonna lose money, MS is a billionare company, and they are gonna start winning money in 2008.

bigstokes
bigstokes

M$ will be ok they are used to not making money from their console its always extras and games that makes them profit and with the holiday lineup and halo 3 things will look a lot better.

ps3killah
ps3killah

[This message was deleted at the request of a moderator or administrator]

vanhalendlrband
vanhalendlrband

360 is definitely a force to be reckoned with and is the largest installed user base of the next generation so far.

x_kenney_x
x_kenney_x

okay lets get real i know lots of people with out xbox 360's preordering an buying halo 3 around my hood. they will get it closer to the release of halo 3 and GTA IV and that not even the tip of the ice block. i don't even a have 360 yet but coming september im getting one along with halo 3. just don't worry people M$ will be on the plus side byu the end of this year.

thekey
thekey

Halo 3's first day sales is going to STUN the PS3! Halo 3 is going to do extremely well. And 360 is going to do well this holiday season even though no one thinks so.

Agermemnon
Agermemnon

with what game's coming out over the next 5 to 6 months i dont think making money will be a problem and hey don't forget your talking about microsoft lol they prob have enough cash to buy the games ind

ibsd
ibsd

this maybe because more and more people are finding out about the defects in the system...........HA HA HA I told you Sony was better.

nazraq
nazraq

only microsoft could take such as loss with stride. i say thats good for gamers. their loss hasn't gotten in the way of the great games coming out. microsoft isn't misleading their customers, or giving false expectations. so if we can count on anything, it'll be that microsoft will be a part of gaming as long as it exists.

mjk_1
mjk_1

i really don't care.. you should be covering a longer warranty so what do i care if you lose a little more money...

Maraxusofkelds
Maraxusofkelds

Ehhhhh the warranty is well deserved cuz of hwo fast the 360 breaks. their fault for making it weak. But yeah, i do believe halo 3 is gonna more than make up for it. i know because im waiting too.

covenant_dude
covenant_dude

Hope they recover from this,Halo 3 might help.

darkchaostitan
darkchaostitan

Didn't see that coming, thought there were more fanboys than that.

Assassin8or
Assassin8or

"Pablo620 Ha ha, microsoft is going to publish halo 3 on Wii, DS, PSP, DX11 (lol), PS3, PS2, and mobile phones to make up for this loss." Really envious of Halo 3... ah? And MS isnt that desperate...

q12345678
q12345678

screw the fan boy crap, everyone knows the Atari Jaguar is the best system ever!

ooJmong
ooJmong

How's about all the Sony supporters and Microsoft supporters get along already? Hmm...? I mean, both have their individual advantages and disadvantages. Microsoft is currently reigning the battlefield (I think) and good for them. Sony still has some catching up to do but it's only getting started with the PS3. Point: everyone STFU about who's better. And I take back everything bad I said about Microsoft. Maybe it's the fact that it's American that pisses me off. haha

IGDetail
IGDetail

I hope MS loses more money on this.... maybe the next Xbox will be built like a tank. Serves them right to skimp on the materials.

Engerys
Engerys

Microsoft knows whats its doing its testing the waters by trying to figure out how and what it will take to get more customers if you buy a product and you know that the provider of that company is trying to fix these problems then you will fill (a little) more comfortable buying their products Microsoft's goal is to make money off of the games not hardware sales, so as soon as they solve that problem they will be in the black in the gaming division. I suggest they work on bringing many pc titles to a pc based console like they are doing now i would love to see a Homeworld xbox360 game or Uniaversal Combat for the x360 or the means to be able to port pc games to a console. (XNA 10.0)

Jaioxung
Jaioxung

Rock on Joe, but you missed the point. Let's go play some games; It doesn't matter what system you chose. If you like 360, play it. PS3, play it, just play and be content that you can. Most people in this world can't afford the luxury. Most people in this would could live for a year on the price we pay for our consoles.

JoeSmith34
JoeSmith34

jaioxung, I agree with you that the fanboys should stop ripping on each other in terms of which systems are losing money, because the only videogame company that is earning money from videogames is Nintendo. Although, Microsoft is earning by far the most profit when all elements of the corporation are factored together. But, as far as your comment goes about, "let's stop arguing and go play some games," I have to say, there are only two PS3 games that have won the Editor's Choice Award on Gamespot, and both of those games are also on the Xbox 360, and they are both rated higher on the Xbox 360. I don't care about "profits or losses," but I really don't like the Playstation 3 because I think it is a very disappointing game system. When it comes to high-definition videogames, the Xbox 360 is by far the best system. And although the Wii isn't a high definition system, it still has a lot of great exclusive award winning games. I think people are right when they point out that we are living in the era of the "Wii60."

mike_mgoblue
mike_mgoblue

The Microsoft corporation still made $14.7 billion in Net Income (Profit) for the fiscal year 2007. That is about 14 TIMES as much Net Income (Profit) as the Sony corporation. Also, remember, Sony Computer Entertainment lost that same amount--$1.9 billion dollars with the PS3 in JUST ONE QUARTER of 2006!!! That is FOUR TIMES worse than what Microsoft experienced in any individual quarter. People who point out that Sony has more "Revenue" than Microsoft need to understand that "Revenue" has NOTHING to do with "Profit." Revenue simply represents "Sales" for the year. Automobile companies have FAR more Revenue than anyone else, but they LOSE money for the year and experience a "Net Loss." Just in the last couple years, Sony experienced a fiscal quarter where they sold billons of dollars in "Revenue," but still experienced a Net Loss of money, because they run such an inefficient business. That is why Sony was forced to lay off 10% of their staff and close 10% of their factories. Microsoft earned $14.7 BILLION DOLLARS in PROFIT! That is what counts the most!

Pablo620
Pablo620

Ha ha, microsoft is going to publish halo 3 on Wii, DS, PSP, DX11 (lol), PS3, PS2, and mobile phones to make up for this loss.

razu_gamer
razu_gamer

thats what happens when you put out a peice of garbage like the 360....(in terms of reliability)

Proust
Proust

Xbox720 will be out in a year or two. MS knows how to replace a sinking ship - the whole company is based off of this.

tastycasey27
tastycasey27

MrSickVisionz ........ how my comment was suposed to sound was that a true gamer will play games from all systems not just ass kiss one company like alot of fanboys on here. im not saying you have to own all 3 systems to be a true gamer. its just that all these fanboys on here dissing the other consoles are missing out on some great games just cos they have there tounge stuck up that companys bum hole.

Jaioxung
Jaioxung

The main thing to be learned here is to stop talking crap about Sony losing money on the PS3, b/c microsoft is also losing money. Neither side of this fan-boy argument have a leg to stand on now. Let's go play some games!!

Fenriswolf
Fenriswolf

lol M$ is losing billions of $$$ despite getting a headstart, and yet people always complaint about Sony! Has M$ even made a penny from their consoles? I very much doubt it. 360 is a massive failure. It's only going on because M$ is too filthy rich. Making consoles at a loss to gain profits back with software sales is a common practise in the games industry. It's called business, you takes risks to make returns. And FYI Sony gains hardly any profit from PS sales. Nintendo is the only console manufacturer that makes profits via console sales, it cannot afford the same risk. MS's current lead hardly portray it as a "massive failure".

StarKiller2127
StarKiller2127

neither of the 2 systems are going anywhere. as in neither of them are going to die off. both systems are backed by extremely rich companies. and both systems have a great line up of games this fall. xbox has Halo3 (even though i don't like it it will sell allot) Mass Effect, Bioshock and many more this fall. and the PS3 has Heavenly sword, lair, home, warhawk, and little big planet early next year. so both systems have great games it just comes down to which games you would prefer i am looking forward to games on both systems so i expect to have some fun this fall with the little bit of time i get to play games between work and college.

TTDog
TTDog

[This message was deleted at the request of the original poster]

jacob-goodlich
jacob-goodlich

[This message was deleted at the request of a moderator or administrator]

smoothn00dle
smoothn00dle

[This message was deleted at the request of the original poster]

TTDog
TTDog

Wow there are more cows in here than the average dairy farm. Anyone would think they had no games to play.... oh hang on... they don't do they.

MCPO_John_117
MCPO_John_117

I don't see what is sooooooooo great about the PS3. Every one I meet says that it's so much better then the XBOX 360, they also say that Japan is so much better then America so i think the ONLY reason that people think that the PS3 is better is because it's Japanese. For some reason Americans have become obsessed with japan, every one i meet says that anime is the best television ever manga is the best type of book out there and Playstation is the best video game console out there. i personally prefer American television, novels ( books with no pictures for you dumbass playstation players out there), and the XBOX. And ooJmong Halo 3 will probably make hundreds of millions within the first few DAYS where as when games like FF XIII come out they will probably make less then half of that within double the time.

Daytona_178
Daytona_178

Who cares, Microsoft will sell soooo much this holiday theyll be rolling in it! (even more so)