Xbox and Halo 2 boost Microsoft's bottom line

Typically, Microsoft officials only give passing reference to the Xbox and the company's overall gaming agenda during earnings reports. However, during an earnings call reporting quarterly revenues from October to December 2004, executives nearly dwelled on how the console is filling company coffers.

"Performance for the Home and Entertainment [division] during the quarter was very strong, as total revenue was a record $1.4 billion, driven primarily by better-than-expected sales of Xbox games," corporate vice president Scott Di Valerio said, addressing revenues for the company's second fiscal quarter, which ended on December 31, 2004.

"On November 9, we launched Halo 2, which generated approximately $300 million in revenue [based on] worldwide sell-through of 6.3 million copies. "

"Our game portfolio continues to grow, with over 600 games available for Xbox and 200 of which are Live-enabled. According to data, Xbox software sales in the United States grew 46 percent year-over-year for the quarter, and the to-date attach rate of 7.7 games per console in the United States continues to be highest ever of any console at this point in its life cycle."

"Console sales for the quarter were strong, driven by the impact of Halo 2 and competitor supply constraints."

Addressing the spike in sales of Xbox consoles during the holiday season, Di Valerio said, "Based on NPD data, Xbox won the critical holiday sales season in the United States, and year-over-year share has now increased in the US for 14 consecutive months."

He went on to say, "Through the December quarter, we sold 19.9 million consoles, worldwide, since launch: 13.2 million of those in North America, 5 million in Europe, and 1.7 million consoles in Japan and the Asia-Pacific region. Xbox Live also continues to do well, with over 1.4 million members worldwide, driven by the impact of Halo 2 and the growing number of Live-enabled titles offered by third-party partners."

Di Valerio continued, "Home and Entertainment revenue for the full fiscal year should be up 10 to 11 percent, up from our prior guidance, based on the success of the first half and expectations of continued momentum." He said the company expects third quarter revenue to be up 14 to 18 percent and is "increasing our guidance for life-to-date Xbox worldwide console-installed base from just under 20 million to 21 to 22 million units by fiscal year end."

Di Valerio also expects the total number of Xbox Live subscribers to climb above the 1.5 million number previously targeted. "We are also taking up our expectations for Xbox Live membership at the end of this fiscal year to 1.6 to 1.8 million members, up from our prior guidance of over 1.5 million members."

Exiting CFO John Conners chimed in with his own paean to the black-and-green box by saying, "Home and Entertainment has really turned the corner in all respects. Halo 2 and Xbox Live have been remarkable, exceeding our expectations."

Also commenting on the early Christmas gift handed to Microsoft by Sony production and retailing strategists, Connors said, "More Xbox consoles were sold during the critical holiday season in the United States than any of our competitors' consoles. Demand was so great that we nearly made our full-fiscal-year console target six months ahead of schedule."

Finally, providing the long view, and patting himself on the back for a job well done, Connors clarified his victories by claiming share gains among consoles had climbed for "14 straight months."

For those looking for the company's release plans for the upcoming Xbox 2, there was little revealed. "In terms of the next Xbox, we haven't announced a release," Conners said. "I think the next period when Robbie [Bach] and the team will talk about that is at E3. ... They're hard at work on it, but it doesn't have a summer announcement".