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Xbox 360 Dents Microsoft’s Earnings

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With a reported per console loss of $125, the Xbox 360 is proving to be a drain on Microsoft’s bottom line.

The proof is in the pudding so to say. Microsoft’s third quarter results are out, showing the company’s home and entertainment division, which supports the 360, took an operating loss of $388 million.

But, don’t cry for Bill Gates just yet. It’s not likely he’ll be applying for food stamps anytime soon. The overall company saw a 16 percent rise in profits, which no doubt would be higher if the next-gen console didn’t cost so much to make.

Better news seems to be on the horizon for the console, however. Analysts are saying the company is on target to have 6 million 360s on the market by the end of June with up to 12 million shipped by the end of the year. So far, Microsoft’s Peter Moore is saying that 3.2 million consoles have shipped worldwide.

Moore also said that “Our supply challenges are behind us operationally.” Microsoft did however concede that the costs related to the Xbox 360’s launch were greater than expected, as the company was inclined to expedite shipments to retail amidst the initial supply problems. Hyper-expensive airfreight was a significant factor here…Microsoft hopes that the home and entertainment division will eventually turn a profit. Cost reduction factors such as the recently announced CPU switch from 90nm to 65nm tech will play a role when the update goes into production in first quarter 2007.

Source: Next Generation

With a projected 12 million consoles on the market by the end of the year, Microsoft might still see losses on its consoles, but it will make up for it in game purchases. Mrs. Gates didn’t raise a fool.

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  • http://www.breakingwindows.com/ Ken Edwards

    You almost knew that was coming.

  • sal m

    in the electronics industry production costs go down over the life of the product so the $125/unit loss that microsoft gets hit with this year will not be $125/unit over time. if they sell enough units – which they surely will – they will still wind up making money on the consoles.

  • http://digitalbattle.com Armin Siljkovic

    No console maker expects profits from the actual console, Nintendo is the only one that made a profit from selling the GameCube.

    Console makers get their money from the games, license fees etc.

  • http://www.getedeals.com/bgl268ig5c Mr. Video Games

    Interesting. I would’ve though X-Box would’ve increased Microsoft’s earnings, rather than the latter.

  • http://umanota.com T. Zimmerman

    I question the numbers, I suspect that the $125 loss is based
    on the base-line model, and not the full system, which I am
    sure they take a greater loss on. I also suspect that that figure
    does not show the advertising costs or launch costs.
    It is also questionable how much more they will lose on
    hardware upgrade add-ons in the coming year.

  • jaim jaim

    lets also not forget the xbox has sold at a loss since the original launched. this is true – google “microsoft games division earnings history” and you shall see on your own. nintendo on the other hand sells the wii at a tidy profit per unit and cant keep them on shelves before they sell out. if it wasn’t for ms’ deep pockets, xbox would be nothing more than a wikipedia article