MS: "Record Revenues" thanks to 360

[Dave Baumann]

http://biz.gamedaily.com/industry/feature/?id=15069

Revenue at the Entertainment and Devices Division (which is home to the Xbox business), rose 76 percent to $2.96 billion, while operating loss increased slightly from $286 million to $289 million. For the six-month period ended December 31, revenue was similarly up 74 percent to $3.99 billion, and the division's operating loss actually narrowed 17 percent from $459 million to $383 million. The company explained that the narrowed loss is reflective of "increased revenue and lower Xbox 360 console per unit cost of goods sold," but added that this was "offset by development and marketing expenses primarily related to Xbox and the launch of Zune, and increased Xbox 360 console warranty and repair expenses."

For the holiday period, the company cited increased Xbox 360 sales, increased sales of Xbox accessories and games, most notably Gears of War. In fact, Xbox and PC game revenue increased by approximately $1.0 billion (a 76 percent jump) during the second quarter, and for the first half those game sales were up by $1.3 billion or 82 percent.

Microsoft said that it sold about 4.4 million Xbox 360 units in the second quarter and a total of about 5.4 million during the company's first half of the fiscal year. Since the 360's launch in November 2005, 10.4 million units have been sold (as was previously announced during CES).

Note: they are also forcasting softer sales of 360 in the later half of their year, which is Jan to June so thats no surprise.

 

[TheChefO]

Sweet

Congrats MS! Now how about turning a profit for a change.

 

[scooby_dooby]

Wow, 4.4 million in Oct-Dec?? Am I reading that right?

Sortof offtopic - I have a friend at IBM, he says new 360 with upgraded CPU, and 120GB HDD coming out this fall. (I know...newsflash!!) Think it will coincide with a pricedrop??

 

[TheChefO]

Wow, 4.4 million in Oct-Dec?? Am I reading that right?

Sortof offtopic - I have a friend at IBM, he says new 360 with upgraded CPU, and 120GB HDD coming out this fall. (I know...newsflash!!) Think it will coincide with a pricedrop??

I think a price drop will come sooner than fall and they will eat whatever costs necessary in the meantime until 65nm is ready. As soon as sales start to taper off (April, May?) they will drop and squeeze the market.

Profits of course will be sacrificed until 65nm comes on board but that should be balanced by significant marketshare gaines and Software attach rates this year.

 

[liolio]

MS loses a hell lot of money!!!
I remember rumor saying that tehy were profitable on hardware...bs...
Now I don't expect real price cut before end q3 2007 (and so I no longer expect pricecut for sony at all this year...).

Edit I've just read the numbers again, I was quiet wrong...
Ms loose ~400 miilions dollars this year, it equals to 40$ per unit sold so I guess this include marketting, exclusive developpemnt, etc...
So on the hardware side, the rumours of ms being profitable could have been true, no?

 

[Rangers]

MS loses a hell lot of money!!!
I remember rumor saying that tehy were profitable on hardware...bs...
Now I don't expect real price cut before end q3 2007 (and so I no longer expect pricecut for sony at all this year...).

Edit I've just read the numbers again, I was quiet wrong...
Ms loose ~400 miilions dollars this year, it equals to 40$ per unit sold so I guess this include marketting, exclusive developpemnt, etc...
So on the hardware side, the rumours of ms being profitable could have been true, no?

Meh, there's this:

For the six-month period ended December 31, revenue was similarly up 74 percent to $3.99 billion, and the division's operating loss actually narrowed 17 percent from $459 million to $383 million.

So for a six month period, it actually lowered somewhat.

But mainly, they shipped about 1.5m 360's last year at this time, and 4.4 m this quarter, so if I'm reading it right, I see vastly narrowed per-unit losses, anyway.

Plus, it's hard to say what is due to hardware. Remember the division now includes Zune, and I dont know how that effects the bottom line (I assume some losses on heavy marketing).

Basically this sums it up:

The company explained that the narrowed loss is reflective of "increased revenue and lower Xbox 360 console per unit cost of goods sold," but added that this was "offset by development and marketing expenses primarily related to Xbox and the launch of Zune, and increased Xbox 360 console warranty and repair expenses."

So I think you're getting some hardware cost lowering, it's simply offset by various other things, and the main reason, they simply shipped a lot more. In that respect, the next quarter should look much better in terms of losses.

 

[zed]

Wow, 4.4 million in Oct-Dec?? Am I reading that right?

yep that also makes just 1 million shipped worldwide in the 3 months previous to that
worrying numbers indeed for ms, with the wii juggernaut catching rapidly (+ its still only in first gear, jan + feb(esp) NPD is gonna be fun)
well since ms have declared they want the xbox division profitable which is still a way off, i cant see a pricecut on the horizon for the xb360

 

[Carl B]

So on the hardware side, the rumours of ms being profitable could have been true, no?

No way; those rumors defied all logic.

 

[Rangers]

yep that also makes just 1 million shipped worldwide in the 3 months previous to that
worrying numbers indeed for ms, with the wii juggernaut catching rapidly (+ its still only in first gear, jan + feb(esp) NPD is gonna be fun)
well since ms have declared they want the xbox division profitable which is still a way off, i cant see a pricecut on the horizon for the xb360

I dont know that MS cares about Wii. I'm increasingly seeing it as Xbox versus PS3. Wii is not trying to be a set top box which is what MS and Sony are fighting over..

And yeah, they did ship just 1m in the prior quarter, I remember that. Still, I dont see why it really matters. Everybody said they wouldn't hit 10m either yet they did (unsurprisingly).

They'll price drop by Fall for sure. Before that, I dont know. Sadly it seems unlikely. I think 360 are selling good right now. We have this huge pallets at work, that are like holiday reserves, they didn't all sell, there was about 4-6 pallets left, which is like par for ms shipping a shit-ton, but I see them still being depleted pretty rapidly in Jan. So I'm kinda suspecting a pretty good Jan, probably because of Gears online..

 

[Rangers]

No way; those rumors defied all logic.

Oh, I dont know. If you really look at what's in a Xbox, I dont see anything that expensive.

You've got two pieces of silicon in a CPU and GPU, that are not very big anymore by PC die standards...I think $100 each is probably a very high guess these days. In a core Xbox you really dont have that much else besides RAM and a motherboard.


The losses could be affected a lot by Zune, Zune hardware may be break even or so, I dont know, but I bet MS spent a shit-ton on marketing (have you seen the placement those suckers get in Wal Mart?). They could be affected by warranty repairs and marketing for Xbox. We dont really know how much breaks out to hardware itself.

If they shipped 4.4m and lost 289m, that is $65.68 losses per box. But I dont have a clue how the entire rest of the division affects profitibility on balance (positive or negative).

 

[Carl B]

Oh, I dont know. If you really look at what's in a Xbox, I dont see anything that expensive.

What ever the expense of the sytem used to be, there's nothing in there that could have been price reduced to the point of profitability on the back of holding suppliers noses to the grindstone alone. For MS to launch a console and then prior to any component and/or process shrinks of any kind... for that console to go from loss-leader to profitable in the span of a year would be unprecedented.

I definitely still think that the 360 loses money at retail.

Zune obviously plays into these overall losses, and it'd be good to know what those expenses were. But it takes a fairly lossy piece of hardware to offset the attach rate and accessory sales the 360 has had. Both of those categories are money straight into the profit pile for MS.

 

[ZoinKs!]

Sortof offtopic - I have a friend at IBM, he says new 360 with upgraded CPU, and 120GB HDD coming out this fall. (I know...newsflash!!) Think it will coincide with a pricedrop??

That'd make sense... But I doubt the new 120 gig will cost less when it's first launched than the pro costs now. My prediction: they'll drop the price of a box with the current size hd by a hundred bucks and introduce the 120 gig for the current pro price.

 

[Rangers]

Now Gaf is all atwitter with the news MS cut their ship forecast to June 30 2007, from 13-15m to 12m, which means they plan to ship just 1.6m in the next six months, which is a consequence of overshipping to hit 10m, HERE:

http://www.next-gen.biz/index.php?option=com_content&task=view&id=4613&Itemid=2

Still, I think they are just being cautious as they say, and will probably end up doing 13 million or something and crowing about it. But it does virtually rule out a price drop one would assume.

 

[Carl B]

Still, I think they are just being cautious as they say, and will probably end up doing 13 million or something and crowing about it. But it does virtually rule out a price drop one would assume.

Rangers I just don't understand the leaps of logic you make. How would a slow shipment schedule reduce the chances of a price drop? If anything, the natural remedy to this would be to increase the chances.

That said, I don't think Microsoft feels much pressure to jack up the install base in that manner until they start feeling a little more heat from Sony.

 

[TheChefO]

Rangers I just don't understand the leaps of logic you make. How would a slow shipment schedule reduce the chances of a price drop? If anything, the natural remedy to this would be to increase the chances.

That said, I don't think Microsoft feels much pressure to jack up the install base in that manner until they start feeling a little more heat from Sony.

I think what MS is saying is "we expect to sell sparingly over the next 6 months" and by stating this as a goal publicly to the stock holders it sounds like they are content with these mediocre figures. They must have pushed a lot more inventory to stores than originally thought.

I still think this is a smoke screen and they will drop the price when sales slow.

 

[Rangers]

Rangers I just don't understand the leaps of logic you make. How would a slow shipment schedule reduce the chances of a price drop? If anything, the natural remedy to this would be to increase the chances.

That said, I don't think Microsoft feels much pressure to jack up the install base in that manner until they start feeling a little more heat from Sony.

Because it is a planning number, and they are saying "we are planning for slow sales". Now, if they had a price drop imminent, one might expect the figures to be higher.

Just imo.

 

[Carl B]

Because it is a planning number, and they are saying "we are planning for slow sales". Now, if they had a price drop imminent, one might expect the figures to be higher.

Just imo.

Ok, I get the way you reached the previous conclusion now. Yeah, that could very well be an indicator of such if viewed in that light.

 

[Dave Baumann]

What ever the expense of the sytem used to be, there's nothing in there that could have been price reduced to the point of profitability on the back of holding suppliers noses to the grindstone alone. For MS to launch a console and then prior to any component and/or process shrinks of any kind... for that console to go from loss-leader to profitable in the span of a year would be unprecedented.

You don't need process shrinks for core components to become less expensive overtime. I'll wager the motherboard and other components have gone through a revision or two in order to reduce costs as well.

 

[Carl B]

You don't need process shrinks for core components to become less expensive overtime. I'll wager the motherboard and other components have gone through a revision or two in order to reduce costs as well.

No doubt, but that's not the same as saying with those minor revisions 360 has gone from losing whatever it was losing ($100+ ?) to profitability.

 

[RobertR1]

No doubt, but that's not the same as saying with those minor revisions 360 has gone from losing whatever it was losing ($100+ ?) to profitability.

Unless you know which parts went through how many revisions, the net benefit of those revisions and any possible contract re negotiations, it's safe to say that arguing on either side of the fence isn't anymore right or wrong (as long as your numbers are realistic ).