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Microsoft Sees Increased Profits, Slight Loss For X360 Division

Microsoft has announced Q1 results, with overall revenue up 11% to $10.81 billion and a small loss of $95 million for the entertainment division, as 900,000 Xbox 360s were sold in the quarter ending September 30th. [UPDATE: Microsoft's Chris Liddel

Simon Carless, Blogger

October 26, 2006

4 Min Read

Microsoft has announced its first quarter results, with overall revenue up 11% to $10.81 billion and profit of $3.48 billion, while the Xbox 360-containing EDD division saw a small loss of $95 million on revenue of $1.03 billion. However, this smaller loss compared well to the previous year, which saw $606 million in revenue and a larger loss of $173 million, with increases "primarily driven by Xbox 360", as 900,000 Xbox 360s were sold in the quarter ending September 30th 2006. The company also revealed that Xbox 360 has sold 6 million consoles worldwide life to date and "achieved record cumulative attach rates for software and peripherals in the United States", while Xbox Live passed the four million member mark during the quarter. [UPDATE: In the Microsoft investor conference call following the results, CFO Chris Liddell commented on reduced Xbox 360 hardware manufacturing costs of recent, explaining: "We are seeing lower cost per console... we're doing slightly better than we hoped for." He also reaffirmed that, while initial costs were a bit more than Microsoft expected, the company expected the Xbox 360 to be "cost neutral over the console's life" - a break even prospect on hardware alone. Liddell also mentioned that Xbox 360 attach rates grew to around 5 games per hardware unit in the quarter.] Comments relayed by Microsoft's John Porcaro also revealed that Xbox 360 will be available in 36 countries for the holiday and our installed base through September is 6 million consoles worldwide (3.6 million in North America, 1.7 million in Europe and approximately 700,000 in the rest of the world.) Microsoft also commented: "By holiday 2006, we expect to have sold more than 10 million Xbox 360 consoles worldwide and have a catalog of 160 high-definition games. Our yearly guidance still implies that by the end of the fiscal year we expect to have sold 13 to 15 million Xbox 360 consoles since launch." In addition, the Xbox 360 accessory attach rate remains the highest ever for the first ten months after a console launch in the US, holding at 2.9 accessory units sold per console (Source: NPD). Software attach rates rose to a record 5.1 units per console (Source: NPD). Finally, Xbox Live now boasts a community of more than 4 million members worldwide, with more than 6 million expected by June 2007. Xbox Live Marketplace has seen more than 70 million downloads since launch including Xbox Live Arcade games, content packs, demos, and other media. To date, there have been 12 million Xbox Live Arcade downloads. All told, more than 2 billion Microsoft points have been sold to date. The Entertainment and Devices Division (“EDD”) products include the Xbox 360, PC games, CPxG (consumer software and hardware products), TV platform products for the interactive television industry, and Mobile and Embedded devices (principally Windows Mobile software platform and Windows Embedded device operating system). Microsoft's financials explain: "EDD revenue increased during the three months ended September 30, 2006, which was launched in November 2005. Xbox and PC game revenue increased $319 million or 107% due to higher console volumes and higher Xbox video game revenue driven by the launch and by more software title releases." But it's also noted: "EDD operating loss in first quarter of fiscal year 2007 decreased primarily reflecting the increase in revenue, partially offset by a $268 million increase in cost of revenue primarily related to Xbox 360, increased sales and marketing expenses related to recent and upcoming product launches including Xbox 360 and PC games, and increased development costs associated with new and upcoming products, including Zune" - Microsoft's portable music and potential video game player, which is also part of the EDD. Microsoft also commented, as part of its results, on the continuing progress for its next-gen console: "We believe that the functionality of the Xbox 360 console, games portfolio, and online offerings are well-positioned relative to forthcoming competitive consoles. We also believe launching in advance of competing consoles will provide a strategic advantage for the long-term success of Xbox 360." Looking forward, it was explained by the firm: "In fiscal year 2007, we expect revenue to increase due to the increased availability of Xbox 360 during the entire fiscal year, including the second holiday season after its launch. We expect to introduce Zune in fiscal year 2007 [before June 2007]." The company's overall second quarter estimates are for revenue of $11.8 billion to $12.4 billion, with operating income of $2.9 billion to $3.1 billion, in the quarter ending December 31st.

About the Author(s)

Simon Carless


Simon Carless is the founder of the GameDiscoverCo agency and creator of the popular GameDiscoverCo game discoverability newsletter. He consults with a number of PC/console publishers and developers, and was previously most known for his role helping to shape the Independent Games Festival and Game Developers Conference for many years.

He is also an investor and advisor to UK indie game publisher No More Robots (Descenders, Hypnospace Outlaw), a previous publisher and editor-in-chief at both Gamasutra and Game Developer magazine, and sits on the board of the Video Game History Foundation.

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