Analyst claims Xbox losing $2 Billion per Year; Suggests it should be dropped

[BoardBonobo]

It's estimated [by an "Analyst"] that the Xbox division is burning through $2 billion a year, a figure that [he claims] is being hidden\offset by the estimated $2 billion they make from Android.

Microsoft is probably losing $2.5 billion on Skype, Xbox, and Windows Phone. Of that, $2 billion in losses are attributable to the Xbox platform.

More call again for MS to ditch the XBox division and also Bing which is estimated to have lost $17 billion since being formed.

Source and here

 

[McHuj]

That division has been making money so what is making 2.5+ billion dollars to offset the loses? Zune? Keyboards and mice?

The numbers don't seem to add up.

 

[DJ12]

If you read the article the division is making money from android sales thanks to their patent portfolio.

 

[London Geezer]

They have a whole lot of cash to burn - unlike other companies we won't name - so I don't see how this is a huge issue.

 

[Grall]

Is an issue for greedy investors, who only reason that more money = better = more money for them.

 

[BoardBonobo]

They have a whole lot of cash to burn - unlike other companies we won't name - so I don't see how this is a huge issue.

It wouldn't be any issue at all if they didn't have investors who are being told that they are losing the equivalent .22c per share due to the operating losses.

The pressure is on to make it all work or loose it. I guess that puts a lot of pressure on the success of the XB1.

Personally I think it would be the worst thing to happen if no one picked up the XBox business (Google, Apple?) and we were left with just Sony in the AAA console business.

 

[McHuj]

If you read the article the division is making money from android sales thanks to their patent portfolio.

That still doesn't seem to add up, you'd need something else in that division generating revenue to cover that 0.5B difference.

 

[BoardBonobo]

That still doesn't seem to add up, you'd need something else in that division generating revenue to cover that 0.5B difference.

It looks as though ~$2billion is the Xbox loss balanced by ~$2billion made from Android trolling. The other $0.5billion is down to Skype etc. I wonder if that includes Surface?

 

[McHuj]

It looks as though ~$2billion is the Xbox loss balanced by ~$2billion made from Android trolling. The other $0.5billion is down to Skype etc. I wonder if that includes Surface?

Right, but if I'm reading the financial statements correctly, EDD wasn't losing money so something had to offset the total of 2.5B losses from Xbox, Skype, and WP and 2B from Android isn't enough to keep the division in the black. So either the numbers are not valid or something is making over .5B in that division to keep it positive.

Surface wan't included, I think it is now in the new devices division post re-org.

 

[dobwal]

The article didn't mention Surface which is sure to have been a money loser for MS. MS took a $900 million charge on Surface RT inventory adjustments alone. (Nevermind Surface isn't recorded in EDD)

Furthermore, MS states that it collects fees on about 80% of Android devices sold in the US. I doubt that figure is as high worldwide since China is a large source for Android devices sales and I doubt MS has agreements with 80% of the domestic vendors that mostly sell devices in China. I've seen $8 per device stated as the average fee collected by MS, but again I doubt thats a global figure since I doubt China or India based phones have profit margins as large as you might see in Western countries.

At 2 billion in fees at $8 dollars a device, MS would be collecting fees on about 250 million devices. I have a hard time believing that scenario. If true, then MS is basically misleading shareholders with their EDD statements because MS rarely mentions Android royalties when describing revenues and profits within the division.

In fact MS seems to wrap any phone based revenue under the Windows Phone brand and MS has made very large payments to Nokia for the last couple of years. Also, Im not sure how MS recorded the 7.2 billion it paid for the Nokia phone business but normally you would expect that cost to be incurred by EDD.

 

[ArcticCircle]

Console biz is very low margin stuff for MS, even at the best times. And big losses over the past few years are far from best times (like PS2 or Wii success). MS should get out asap but I get the feeling they want to ride Xbone generation out unless sales are abysmal. And I don't think they are going to be that bad, especially with good console exclusives like Titanfall.

 

[eVolvE]

I'm in no way a financial specialist or analyst, but I kind of doubt that they are currently generating losses. They pumped in a whole lot of money for R&D and the huge RROD debacle with X360 but I can't imagine that their operational income from console sales, xbox live, etc. is currently negative. Their gross revenue over the past 10 years is most definitely negative due to the huge investments mentioned above, but their annual revenue has to be positive currently, given that they earn money for each console and game sold and I also think that they generated a lot more money from Xbox Live subscriptions than it costs them to run these services. I might be wrong though, but other analysts suggested as much.

But I guess, at the moment it is kind of easy to believe this analyst, since everybody is currently believing every possible negative news about MS's Xbox.

 

[AlphaWolf]

Sherlund is an idiot.

 

[Scott_Arm]

Is that a recurring loss or is that just a loss because of R&D sunk into Xbox One, which hasn't been released yet. You're always going to go in the hole before launch of a big product like that.

 

[London Geezer]

It wouldn't be any issue at all if they didn't have investors who are being told that they are losing the equivalent .22c per share due to the operating losses.

The pressure is on to make it all work or loose it. I guess that puts a lot of pressure on the success of the XB1.

Personally I think it would be the worst thing to happen if no one picked up the XBox business (Google, Apple?) and we were left with just Sony in the AAA console business.

The share price has gone up 35% since the beginning of the year, or 20% just in the last 3 months so the investors are very, very happy.

 

[dobwal]

Is that a recurring loss or is that just a loss because of R&D sunk into Xbox One, which hasn't been released yet. You're always going to go in the hole before launch of a big product like that.

Doesn't matter. People want MS to unload the Xbox division because they feel it will increase the value of MS shares. But MS share value isn't locked behind the losses associated with the EDD division, its locked behind the thought that MS revenue and profit generation is mostly dependent on its PC business in a post PC world and is becoming less and less significant as time goes on.

Dropping the Xbox wouldn't alleviate that notion and only makes MS more dependent on its PC business for revenue generation. EDD is actually becoming more significant part of MS's business, so I see no point of dropping the most significant product in that division.

WinMo was never a huge revenue or profit generator, but MS's investment into it's mobile phone division is ultimately the reason why MS gets to tax Android, which is becoming a more significant source of profit for MS every year. At least if the Xbox division never becomes a major player for MS, the level of investment and patent production MS gets out of the Xbox will allow MS to patent troll the console and gaming market for years to come. LOL.

 

[BoardBonobo]

The share price has gone up 35% since the beginning of the year, or 20% just in the last 3 months so the investors are very, very happy.

But that' off the back of Balmer leaving and the perceived positive benefits that the re-org will bring.

It seems to be a recurring theme with investors though and I wonder how much it would take for it to snowball into a general insurrection.

 

[Dominik D]

Surface and Skype are the most likely candidates for loses. Xbox isn't, unless XBL was pulled out of the P&L.

 

[blakjedi]

Sherlund is an idiot.

This.

Those numbers are wrong. EDD has been in the black for at least two years...

 

[liolio]

The share price has gone up 35% since the beginning of the year, or 20% just in the last 3 months so the investors are very, very happy.

The plan nowadays with investors is more about saving as much cash as possible and have "growth" through buy outs. If the guy is right well, first the share holders should be rightfully pissed off and sinking money in a low profit business is not a worthy investment.

If true I would think that MSFT would have made a better move by launching a "plain" WindowsRT device, (instead of this dual OS thingy) with a business model akin to SteamOS: ~open platform, etc.
If RT doesn't take off it will lose them more money than Xbox is likely to ever do and if it does it will also make them more money than Xbox ever will. => Pointless talk as it is all but speculation on speculations of guys (though the guy seems to make pretty good points).