Microsoft profits double, Xbox narrows losses

As it did last quarter, the Xbox is showing signs of improvement. While it won't turn the fortunes of Microsoft Corp.'s game division around--it still loses money for the software giant--it did narrow the losses for the second quarter in a row.

For the quarter ending March 31, 2005, Microsoft's game group lessened its operating loss to $154 million (from $209 million the same quarter a year ago). The group reported revenues of $593 million, a 12 percent increase due primarily to Xbox sales.

Elsewhere, Microsoft was far in the black--even more than usual. Overall earnings for the quarter saw the software giant bank $2.56 billion in profit, or 23 cents per share, on revenue of $9.6 billion. That compares with earnings of $1.32 billion, or 12 cents a share on revenue of 9.18 billion for the same quarter a year ago.

However, those numbers are off what Microsoft had expected heading into the quarter, having targeted revenues in the range of $9.7 billion or $9.8 billion, and earnings per share of 27 or 28 cents.

"Our slight revenue miss was driven primarily by the combination of unfavorable exchange rate movements since we gave you guidance in January, and a greater than expected decline in commercial and retail licensing for the client business," Curt Anderson, Microsoft's general manager of investor relations said in the company's quarterly conference call.

Anderson also made sure to mention that Xbox production had been stepped up after last year's holiday season when the company had difficulties meeting demand.

It wasn't all bad news, though. Microsoft's Home and Entertainment division turned in a strong quarter with revenue growth of 12 percent over the same quarter last year. The company's Server and Tools and Mobile and Embedded businesses also performed well, Anderson said.

The company's outlook for the final quarter of fiscal year 2005 was positive, with company-wide revenue growth expected to hit between 9 and 10 percent, up to $10.1 billion or $10.2 billion.

The Home and Entertainment division is expected to see revenue growth of 20 percent to 22 percent, driven by Xbox sales, Xbox Live membership, and software sales.