Xbox division posts $165 million Q1 profit despite 12% 360 sales drop

Increased Xbox Live revenue, lowered manufacturing costs, currency exchange help offset just 1.5 million consoles sold; Microsoft reports record $14.50 billion quarter overall.

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This afternoon, Microsoft reported its financial results for the January-March quarter, the third of its fiscal year. For the three months ending March 31, the software giant posted record revenue of $14.50 billion, a 6 percent increase over the same period in 2009. Profits for the quarter jumped 35 percent to $4.01 billion, for $0.45 earnings per share.

Microsoft had a record quarter…

Microsoft's Entertainment and Devices division had a less spectacular quarter, with revenues rising just 2 percent year-over-year to $1.67 billion in revenue. The division saw operating income rise from a loss of $41 million in January-March 2009 to $165 million during the same period this year.

The profit was in large part due to a $62 million windfall resulting from foreign currency exchange rates. Microsoft also called out increased revenue from Xbox Live as a factor, as well as a $199 million decrease in the cost of revenue "resulting primarily from lower Xbox 360 console costs." The drop in manufacturing costs for the console will likely further fuel speculation that Microsoft has developed an Xbox 360 Slim, which would require fewer materials to make and cost less to ship.

…but Xbox 360 sales dropped from 1.7 million to 1.5 million.

That said, both Xbox 360 hardware and software revenues were down during the quarter. Microsoft only sold 1.5 million consoles from January to March, down 12 percent from 1.7 million during the same period the year prior.

Though the company said the slip was "in-line with overall market decline," its impact was compounded by the lower price commanded by Microsoft's consoles, which now sell for $200 (Arcade) and $300 (Elite). First-party Xbox 360 software sales were also down, comparing unfavorably due to the release of the hit Halo Wars during the same quarter in 2009.

Non-gaming revenue in the Entertainment and Devices Division, which also makes the Zune, was up 14 percent. Looking ahead until the end of its fiscal year on June 30, Microsoft expects EDD revenues to remain largely flat, which executives said would mean a "significant uptick" in gaming revenues during the April-June quarter.

For the nine months ending March 31, Xbox 360 and PC game revenue decreased $240 million, or 5 percent. This was in part due to console sales falling from 10 million to 8.8 million. The loss was compounded by the fact that Microsoft cut into its own bottom line to boost sales, slashing the price of the Xbox 360 Elite in August and releasing a $300 Halo 3: ODST/Forza 3 Elite bundle in March.

Curiously, though, Entertainment and Devices Division profits more than doubled, rising 242 percent from $249 million to $851 million. Part of this was due to increased Xbox Live revenue, but the main reason was, again, cost of revenue reductions--this time to the tune of $779 million, or 19 percent. This was in large part due to lower manufacturing costs for the Xbox 360, which also saw sales and marketing costs drop $60 million, or 6 percent.

Finally, the EDD division found savings by reducing research and development expenses during the nine month period by 6 percent, or $82 million. The cutback is curious, given that Microsoft spent the period hard at work developing its motion-sensing system Project Natal, which it plans on launching this holiday season with as much hype as it would console.

Discussion

98 comments
Excedra
Excedra

no man this just proves how many people dont take care of their stuff.

Colepachi
Colepachi

hmmm a slim 360? Require fewer materials? I've taken the original 360s apart plenty of times and it already seems like its a stripped down piece of equipment.

andrew_ribbons
andrew_ribbons

"Microsoft credit for saving money without laying a ton of people off!!!" Actually, significant employee cuts were made by MS at this time last year to make this profit happen. Several very distinctive studios, including Ensemble and Aces studios, were shut down entirely much to my dismay and confusion (Ensemble released H.W. to great success). MS will definitely need to think about expanding their Game Studios department with more studios as it is somewhat dwindling. I do like MS and what they achieve sometimes is great, but don't forget that this is recovery after a ****storm.

OniRaitei
OniRaitei

A lot of you come here only to post a comment to bash the 360 or PS3. Instead you should be giving Microsoft credit for saving money without laying a ton of people off!!! In even simpler terms: People aren't losing their jobs!

lamprey263
lamprey263

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

Locutus_Picard
Locutus_Picard

These number just show how willing people (XBL subscribers) are to fork over cash. 12$ to 24$ increase annually in XBL, here it comes! :lol:

steelmouth
steelmouth

$165 million profit, thats prove that games are way too expensive

MEGA--X
MEGA--X

@ flameducky True fact bro

blackace
blackace

They need to use all that profit and make more exclusive games. Instead of releasing 7-8 exclusive games a year, try opening a few more studios so you can released 15-20 exclusive games a year. That's about how many we need and should have. Thanksfully Natal is coming out this year, so we might actually get 10-15 exclusives.

BloodMist
BloodMist

Wow what an absurd overstatement of HDMI 1.4.All it does is give more flexibility for that wonderful gimmick that's barely and will barely ever be used, 3D.It's not the messiah of multimedia or anything like that.

flameducky
flameducky

Most of you stupid 360 fanboys are whining about the 360 hitting 40 million units, even though the Xbox Live user base is only around 20 million. Epic fail

MagicOneUp
MagicOneUp

@SalarianChemist whats the diff btw hdmi 1.3 and 1.4?? i mean the pictures are gonna be 1080 and 5.1 audio in its all glory. beside AV, i think the hdmi is pretty useless

MagicOneUp
MagicOneUp

Take that Sony! its something that sony hasn't seen in a long time!

redcloud12345
redcloud12345

@SalarianChemist .. lmfao ... you are the pinnacle of a fanboy... look at you with your "facts" ... lol.. please. go back to your bed room

Red_Jester
Red_Jester

I hope Microsoft gets their act together on exclusives. They can't afford another 2009 where they had no games and the PS3 not only finally had a good year, but had an amazing year.

themyth01
themyth01

They're making some big bucks. Let's hope it translates into more money into game development.

SalarianChemist
SalarianChemist

If the windfall from exchange rates helped Microsoft by $62 Million, that means it hurt Sony and Nintendo by a similar rate since those two companies are based in Japan. I think it's very interesting that Microsoft points out much of the revenue is from Xbox Live. This strongly suggests that it will be virtually impossible for the PS3 to boast a profit in the current environment. Even though the PSN does not offer the level of quality that we see on Xbox Live, it really is hurting Sony's finances to offer that service, and I believe Sony will start to charge gamers for the PS3 soon, as rumors have long indicated. Blu-ray players in 2010 will be manufactured with the much more advanced HDMI 1.4 technology, which means people interested in a high-quality Blu-ray player will not be interested in the PS3, since they could buy an HDMI 1.4 Blu-ray player for less money than the PS3, which is based on HDMI 1.3 technology. This is important because the gap between HDMI 1.4 and 1.3 is very large. The deals that companies like Gamestop and K-Mart have recently offered on Xbox 360 are absolutely amazing. Purchasing an Xbox 360 Elite for $299 and getting Halo 3: ODST and Forza Motorsport 3 (the best racing game ever!) for free is an amazing deal! Plus, you even get Hexic for free on the hard drive, which technically means you get three free games. If Microsoft could actually keep all those Xbox 360 units in stock, the sales numbers would be even higher each month.

Trogeton
Trogeton

they need to stock more premium bundles other than elite.. I find that the main issue.. they run out of the premium bundles faster because they are cheaper there are not nearly as many sales for the elite for some reason.. although I would not mind trading my premium for an elite, they would make more sales if their were not as many elites

pakrulz
pakrulz

Thats a surprise with the much lower price of the xbox 360 i expected them to make another loss...nevertheless job well done!

Yuck_Too
Yuck_Too

@fps_d0minat0r You remind me of a guy named Darkride66 who used to use that same flawed arguement of compare offset years to see sales trends. Here is the thing. After 5-years the 360 has roughly the same 5 million unit lead over the PS3 as it did the day the PS3 launched. That means both have grown at the same pace over the same time.

drokmore
drokmore

Im not sure why theyre worried about hardware sales. 5 years in and they have to be reaching a saturation point. Theyre money will have to come from software for all the existing xbox/xbl. Man just think how much money they would have made if they had taken the time to make xbox right and avoid the RROD disaster.

Darth_Ultima
Darth_Ultima

@ps3freek The Mass Effect series. Nuff said.

The_crapgamer
The_crapgamer

@ redcloud12345 They are last because the effed up from last generation. They lacked any resemblance to a decent exclusive for more then 2 years. They continually get outsold in America, which was the biggest PS2 supporter. They have seriously hurt there fan base with there mistakes. Microsoft had a 5+ million console lead when the PS3 launched, now it looks like it could be closer to 7 million. With Halo Reach coming and pushing consoles and Natal and probably a slim 360, that gap is just gonna get wider. Momentum is a great thing.

14113
14113

@ ps3freek(yeah, your not a fanboy). Anyway Its not about the opinion and ratings of games its about how much money is made off them. most of the games you listed are at most worth a rental. for example, motorstorm race repeat unlock everything in a couple days no story, no additional content. where as Halo you may consider lame when others consider it epic. why great story, great MP, and then you add on well , the add-ons, 3 sets of maps that made more money then some original IP's ever make. and before you post a reply PLZLRN2SPEELCHK,

quiksurfer
quiksurfer

they should seriously consider 360 slim because it will definitely push the sales further

ps3freek
ps3freek

ps3freek Posted Apr 23, 2010 2:01 pm GMT @FoxbatAlpha are u kiding me : un1.2 . kill 2 .. gow 3 .. motor 1.2 .. lbp1 . 2 ( rumor ) infa.... eye. p demon rpg of the year...... gt5 comig soon .. rain . mgs 1.2.3.4 .. last gua ... coming soon ... sairen ........ ridje racer .... what do u got that is a bluckbuster game that everyone love .. ps : thers alot in the ps3 i didnt mention but mostly because they sucks . now could u tell me what are the games in the 360 that is an exclusive game and rocks the world dont mention an exclusive that is lame only the good one which ithink the only one is gears of war that game rocks as for halo the only thing about it is that in its time it had online gamplay as for the story the graphics the game called ( black ) is better than it peroid.

ps3freek
ps3freek

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

jmartinez1983
jmartinez1983

Giant corporation makes lots of money!!! Film at 11! That's all it says and that's all that really matters.

OhSnapitz
OhSnapitz

Impressive considering the original XB sold a whopping 25 million after 5 years on the market ( and the 360 hasn't even hit the 5 yr mark). I would guess that after the XBSlim and Natal, the sales of the XB will increase. If the 360 stays on the market for at least 2 more years (before the next xbox), I can see it selling upwards of 60 million.

14113
14113

@fps_d0minat0r you make is sound like Microsoft has no First party titles. When in fact MS makes more on there "exclusive" titles then ps3 ever has. don't get get me wrong i have both systems but the only ps3 games i have can be bought for either system. but i dont rememeber God of war breaking any sales records or uncharted, even tho there both great games. however 2 titles for MS have repeatedly set records (Halo and Gears series.) making MS most of there profits from games

Ric_SlayeR
Ric_SlayeR

@zafreedan Finally someone with common sense.

swamptick
swamptick

@ Waldkrieger You cared. You came over here, red the article and then cared enough to post about it. Your own statement defeats itself and proves you dishonest. Owned.

swamptick
swamptick

Another day, another article about Xbox doing well!

snakes3425
snakes3425

Five years is the average shelf life for a console, by now everyone who wanted a 360 has one, so it's time to start pushing the 360's technology to it's limit with games and taking advantage of NATAL's technology as well

Vishant
Vishant

@Gelugon_baat as a company that sells shares to people, it's accounts must add up and be submitted for auditing to allow people to make informed decisions about whether to buy or sell shares. U think they will risk the long term profitiability and existance of the company for short term gain? no way

wyan_
wyan_

I'd be just as happy if this were Sony or Nintendo.... Okay well maybe not if it was Wii sales.

fps_d0minat0r
fps_d0minat0r

@ zafreedan i agree but first we should stop people telling lies like: "Don't worry Sony, PS3 only does everything! Just not make money or sell"......when infact its selling at a faster rate than xbox.

fps_d0minat0r
fps_d0minat0r

@ The_crapgamer they do make money, but from software and they invest it in more exclusives.......unlike M$. their only losing like $20 on each ps3 now which they can make easily with a sale of a game. your also forgetting that ps3 has more game studios to make them money. when ps3 sells a copy of god of war or uncharted, they get a higher return than when xbox sells a copy of splintercell or episodes from liberty city because xbox heavily relies on 3rd party games which take their own share as well.

zafreedan
zafreedan

if you are a gamer, you respect other gamers no matter what console they have Let's stop fanboy-ism =p

pete_merlin
pete_merlin

A wise man doesn't choose sides, instead he purchases both consoles and has one hell of a time. Which do I choose to play? Uncharted 2 or Mass Effect 2? Decisions decisions :P

kinstar2002
kinstar2002

Out of my whole 360 span (since it came out) ive only had 3 xbox's. the first one at launch,(my brothers) which got the rrod after 3-4 years. and i bought one in 07. and that one got a rrod after a couple of months. Now i have my 3rd xbox and its working fine. People who got the rrod was probably dumb enough to leave it in enclosed areas, where it can be dusty and hot. i know i did. and thats what i got: a RROD. Just be smart and leave it somewhere out in the open where there wont be a chance of it getting the rrod. As for Microsoft, good job. i personally enjoy the 360. it has great games and alot to offer. ps3.. *crickets..*

drangel_jam
drangel_jam

I don't like the shady pricings on XBL right now. So I'm not even gonna comment much further. $5 Avatar items, 'nough said.

monson21502
monson21502

@redcloud12345, well i trust ms more then sony.... heres why, my ps1 died on me*stopped reading discs* my ps2 never could play a dvd all the way to the end of a movie w/o a disc read error. my ps3 got ylod. meanwhile my 360 broke and ms maned up to its problem and fixed my E74 error for free and my old close to launch xbox still works prefect..... i`ll take a 2 week wait over 350 bucks *for a ps3 slim : plus all my game saves, pics and vidoes lost for ever anyday.

monson21502
monson21502

i think once demos of natal hit walmart and gamestop. 360 sales will sky rocket. they will sell more system in the next 2 years then the first five i bet. specially if they make a slim natal bundle for 199 this holiday.

redcloud12345
redcloud12345

@method115 - I can see what you mean. I used to be a halo nut way back when halo 2 was the biggest thing. all of my friends where also. but halo 3 sucked so we all stopped playing. I am pumped for reach but idk if it will ever be as good as 2 online. my biggest problem is I have a high end pc so I can run almost every xbox exclusive that comes out on pc at some point. I pretty much have an xbox for Perfect Dark xbla and because I have a couple friends that still use live. other then that my ps3 has been getting much more attention lately because of bc2.

method115
method115

@ redcloud12345 I agree completely. I have a 360 only (used to have a PS3 but sold it for my 360) but I trust Sony way more then MS. The problem is Gears of War and Mass Effect are bar none my all time favorite series. I played them on my PC when I had a PS3 and immediately got a 360.

redcloud12345
redcloud12345

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

Zerosumgame
Zerosumgame

Sales drop will contribute to profit drop next time, just need to wait.