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Microsoft Beats Estimates, Sees Lower Profits On X360 Hardware Costs

Tech giant Microsoft beat estimates but posted a lower profit, partly due to Xbox 360 hardware costs, also revealing it shipped 1.8 million Xbox 360 consoles in the quarter, with 3 million users now using Xbox Live on the next-gen device.
Tech giant Microsoft has announced its fourth-quarter financial results for the period ending June 20, 2006, beating estimates and showing a 16 percent increase in revenue to $11.80 billion, but a fall in profit from $3.7 billion to $2.83 billion compared to the previous year, partly due to Xbox 360 hardware costs. However, Microsoft noted that it shipped 1.8 million Xbox 360 video game console units in the quarter, according to a slide presentation on its website, and that its Xbox Live service numbers 3 million users as of the end of its fiscal quarter. Looking ahead, the company anticipates revenue for its entertainment and devices division to climb by 31-46 percent in fiscal 2007, and by 53-60 percent in the first quarter. As for specifics on the Xbox 360 and Xbox's financials, the company's Home and Entertainment division, which includes the Microsoft Xbox video game console system, PC games, the Home Products Division, and TV platform products for the interactive television industry, saw revenues of $1.138 billion, a significant increase from the $587 million reported for the same period in 2005. However, the division also posted a loss of $414 million, a jump from the previous year's loss of $201 million, a clear indication that the costs associated with Xbox 360 hardware manufacturing are eating into Microsoft's bottom line. The company remained optimistic depite the decline in profits, noting that it “delivered a very strong finish to the fiscal year highlighted by customer demand for our recently launched products of Xbox 360, SQL Server 2005, Visual Studio 2005 and Microsoft Dynamics CRM 3.0, which fueled a combined 31% revenue growth of their business groups for the quarter," stated Chris Liddell, chief financial officer of Microsoft. He added: "Our upcoming launches of Windows Vista, the 2007 Microsoft Office system, Exchange Server 2007, and other key products position us to continue to deliver strong revenue growth in fiscal year 2007. We are also very pleased that both the Microsoft Business Solutions and the Mobile and Embedded Devices businesses achieved profitability for the full fiscal year." Looking forward, the company noted that it expects revenue between $10.6 and $10.8 billion for the quarter ending September 30, 2006, and that profit will be between $4.0 and $4.2 billion for the period. For the full fiscal year ending June 30, 2007, Microsoft's management believes that revenue will be between $49.7 and $50.7 billion, while profit is expected to be between $18.9 and $19.4 billion.

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