Microsoft Game Division Triples Profits In Strong Quarter

Microsoft saw Q2 profits rise 60%, outpacing a 14% revenue gain, as its gaming group, Entertainment and Devices Division, tripled profits -- even as revenue and Xbox 360 console sales declined.
Tech giant Microsoft saw its second fiscal quarter profits rise 60 percent year over year in the three months rounding out 2009, outpacing a 14 percent revenue gain. Along the way, its gaming group, Entertainment and Devices Division, cut costs on Xbox 360 hardware and marketing to post strong profits -- even as revenue declined. Overall for the firm, "exceptional demand" for Windows 7 led the company overall to bring its profits to $6.7 billion in the quarter that ended December 31, from $4.2 billion the previous year. Revenue was up to $19.0 billion from $16.7 billion. So far, Microsoft has sold some 60 million copies of Windows 7, calling the software the fastest-selling operating system in history. Entertainment and Devices Division, a larger division that includes the Xbox 360, Games for Windows, and Zune, managed to triple its profits even as revenue fell. Decreased sales of Xbox 360 consoles and games were the main reason for the falling revenue, with quarterly console unit sales dropping to 5.2 million from 6 million. The firm noted that "decreased revenue from Xbox 360 video games was due primarily to the release of two significant games in the second quarter of the prior year" -- likely to be Gears Of War 2 and Fable II. But Microsoft's EDD division as a whole more than made up for that shortfall with lowered R&D and marketing expenditures, and other cost reductions. Specifically, Microsoft said its cost of revenue decreased 23 percent to $478 million, thanks to lower hardware costs for Xbox 360. However, that was partially counterbalanced by the company paying out greater amounts in Xbox Live royalties. Marketing spend went down by $75 million, and R&D expenses went down by $50 million. Overall EDD revenue fell 11 percent from $3.3 billion to $2.9 billion, but profits rose 188 percent from $130 million to $375 million.

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