3 year warranty for all X360s.

I'm with Shifty - investors want to know that the XBox division is not a total boondoogle, and that it can turn a profit. Microsoft has stated for some time now that '08 will be the year, they reaffirmed it a couple of days ago, took a charge in '07 to allow it, and personally I think they will reach that goal. If one heard the questions and tone of the analysts on the call, there wouldn't be any confusion that they're interested in the performance of this one division as separated from the rest of the company as well.

I'm also not sure at all where the line is coming from saying that the losses in XBox are fueling profit elsewhere in the firm. I think if this is a position anyone has, they need to flesh it out a little more. The only ancillary benefit I see to the charge being taken now, is that less tax will be paid relative to what they would have paid this year. But even in this scenario, since MS can reasonably expect to be profitable into the billions for years to come, the deferment for tax purposes would ultimately mean nothing in the long term.

 

That may well be true, and of course this all just my opinion. The true test to what investors think will be in the share price in the event (or lack of) a departmental profit.

One thing to keep in mind is that analysts are paid to provide detailed analysis of a company and so will drill down to individual divisions as a part of that, however it will be the total picture that will be viewed when making decisions re ownership of a company.

Of course whether investors share microsofts ideology is impossible to predict. Bet they keep buying as long as microsoft keeps making a profit though

 

I believe one quarter so far, when Halo 2 was released.

 

As I saw as the xb divisiongrowing,the losses are growing.And this is not soo good sign,because after a while the losses will be begger than the profit on the other divisions.
And right now the only thing that I can see the xb division decrease the profit of the op system division.
if you buy a pc for gaming, you pay a 100$ fee for the ms.If you buy an xb,the ms pay for you.crazy,isn't it?

 

I want to point out that these two text blocks are semi-contradictory; in the fist you state the reasons why a company would structure the announcement this way - i.e. because investors care - and in the second you go to lengths to say that investors don't care.

No two companies are viewed the same, and just as it would be ludicrous to think that year after year SCE's individual results aren't put under a microscope irrespective of Sony's larger earnings, so to is it the case (though to a lesser extent) with the Entertainment and Devices division. How large or small a part of the overall business does not matter in terms of the 'feel' the investment community has with respect to these operations - they read the headlines, they don't have that much time to research, and by seeing analyst reports you see what the "professionals" in the industry are affected by... read: these people are fickle and not often fully aware of all pertinent facts.

It doesn't matter that this loss is more or less irrelevant in the larger scheme of things at MS - for better or worse a flag has been planted concerning profitability for the division. I'm not saying it's right or fair, but it's very real. Al major XBox execs - and now with the CFO of Microsoft on stage - have said that the division will be profitable in '08. This is no trivial thing - although you and I might be able to perceive it relativistically and see a $10 million profit is not so different from a $10 million loss, that is not what the headlines will read, and MS is well aware of this.

The console business, for whatever reason, is simply more romantic than the core operations over at MS and Sony, and thus naturally garner more of even the mainstream press with their fiscal performances.

I personally think that with the $1 billion charge taken in advance in '07, profitability is well within reach this year, and a root cause for how this was structured. They want to present an image to the community of "our issues are behind us."

The tax angle is a red herring in this case, because at no time would the console divisions losses be large enough to materially offset the rest of the company's profits in such a way that there would be an appreciable gain relative one year vs the next. From a macro-corporate standpoint, the only advantage here is that the earnings across quarters and years can be better managed; Wall Street likes stability.

 

Who was talking about tax? Kryton wasn't when he mentioned a fudge, and I haven't been since continuing the debate. The 'fudge' is a working of the finances for PR purposes. And if you think financiers aren't fickle and swayed by the smallest, most irrelevant noises and rumours, you're exist in a totally different world to me! Shares roar and plummet without any careful consideration of figures. You always want to publishing positive PR when you can. That's why companies do this all the time with dodgy figures!

 

The Newsweek blogger agrees with me
http://blog.newsweek.com/blogs/leve...bout-xbox-360-flaws-or-initiate-a-recall.aspx

 

N'gai, giving the gears to MS?? Say it ain't so!!

A recall's not gonna happen, so may as well move on.

I'm just personally happy I don't worry about repair costs in the future, the 3-4 week downtime is not a major concern, especially knowing that if it does happen, I should get a nice new 65nm unit to replace it.

 

MS is simply writing off one billion right now to keep the cost of the 3 year warranty from negatively reflecting on future profits.

Profit growth over five years looks better to investors than no profit growth over 5 years even if the profits taken in over 5 years from both scenarios is the same.

Taking in 500 million each year for the next 5 years looks no way as impressive as 80 million in the 1st year, 160 million in the 2nd year, 320 million in the 3rd year, 640 million in the 4th year, 1.28 billion in the 5th year.

Writing a billion off now allows a greater portion of the future generated revenue from software and hardware of the 360 to be reflected as profits.

 

But I wasn't talking about Tax! Tax has nothing at all to do with it! MS have the costs now. They can choose to file them under 2007, or 2008, or in dribs and drabs in the following years. MS can't pick and choose the most profitable year to file these costs under for tax purposes. This has nothing to do with tax! Why can't you follow that simple premise? This is about PR, and reaching their announced target of division profitability in FY08. That announced profitability has zip to do with tax or corporate profitability, but everything to do with how MS's gaming division is perceived. It's been a loss-leader for years. MS need at some point to turn that around. They need to be able to say 'See? We invested billions of dollars because we knew eventually we'd make money from it!' So far that's hasn't panned out. So far people look at MS's gaming division and say 'seriously guys, what's the point? You just keep losing money.' MS need to prove that it was a smart investment, and they'll make back their money with interest. They've set that target for FY08, but have hit another sudden, unexpected huge cost. Rather than let it ruin their FY08 profitability target, they've moved the costs forward a year. Not for tax reasons - no-one was talking about tax. It's for PR and making a big announcement 'See! We're right! Profitability in the gaming division. It was worth it all, just as we said it was! We weren't wasting investors money at all pursuing worthless ventures.'

And you're showing both your rudeness and your inability to follow an argument! Your background in finances has obviously got you thinking about taxes and stuff that have no bearing on the original idea. What's most aggravating is that you discuss points with utmost arrogance, and then when you are proven wrong (not necessarily this time), haven't the courtesy or humility to say 'oops, sorry. Yeah, I messed that up.' In many a thread, you push on with your argument completely missing the POV that the others are talking about. It's got to the point where I don't care to discuss with you. If you can't be civil, and will persist in stomping about in your Size 12s on whatever toes you take offence at, often stomping quite the wrong toes without so much as a sorry, you're never going to manage constructive discussion.

 

The majority of recalls revolve around safety issues.

Recalling all your products to fix a problem that shows up in a number as even as high as 30% is way too cost prohibitive especially when fixing that 30% for free when that issue crops up produces the same effect.

 

It's not 30%, it's 30% so far. If there is a fundamental design flaw in the 360 up to this point we may see near 100% failure given a few years. The question is what is the MTBF on the original design?

 

In the case here, they legally had to, since the 1 billion dollar charge affects their forecasts. Right?

Which in Microsoft's case, it's the current year. I suppose they could split the $500 million over two years (or more, depending on whether they need the extra half), but it seems the notion of charging a billion against this fiscal year is similar to any other bad news: get it all out there at once. Don't trickle it out over a period of time.

 

You guys raise good points in your individual posts. I mainly disagree on the severity of having a product be considered of poor quality. I believe it has a ripple effect and no amount of warranty will be able to overcome that, which was the reason I chose Hyndai as an example. They actually have good quality cars, and yet I think they still suffer from a perception of poor quality. In the end, an Xbox 360 is not in the impulse buy range, which means things like quality, game library, etc all still have an effect on the consumer.

 

Agreed, but at the same time I think in this pricerange with this type of product, a 3 year warrantee goes a long way in reassuring a customer.

I mean, with a car, you don't want it to be in for repairs, even if it is warranteed, because it's a major inconvenience anyways.

But, with a console, you know you're only gonna have to fix it one time, and it's not the end of the world if you have to send it away for a few weeks, so in this case a warantee can really help consumers feel safe imo.

 

And you know that how? Microsoft still hasn't said. They have only alluded to a greater than 5% rate. The question is not only what is the MTBF, but a whole load of other questions. N'Gai's list is good start. Percentage that have been affected so far, how many have been returned, does the problem affect the Elite and if so, how many potential systems on store shelves are still affected by the problem. I'm sure Microsoft will keep this info to itself, but it's nice to see somebody like N'Gai put it out in the public arena.

Tommy McClain

 

Well they didn't announce a price drop during the E3 conference... When will they?

 

When ps3's start selling I guess.