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

Some analyst is reported to have said the EDD is losing $2.5 billion a year but that's hidden from investors by $2 billion in android fees. This same analyst attributes $2 billion losses per annum to Xbox, despite financial showing an operating profit. This analyst doesn't provide any explanation or evidence, at least not in the article reporting it.

Sounds like a lot of crap to me, it wasn't long ago we were told XBOX made Microsoft billions and the billions they burned up during XBOX and the RROD disaster had been "paid back". Either they must have spend alot of money on Kinect2/XB1 or someone has been lying all the time if this is supposed to be true.
 
Now Elop wanting to focus on Office is pretty dumb... it is pretty much akin to throw the baby along with the water bath...

here is a link to article on what Elop wants to do:

http://www.theverge.com/2013/11/8/5080192/microsoft-ceo-candidate-stephen-elop-bing-xbox-rumors

Personally I don't care for him too much, I think he is willing to make tough decisions and even gutsy ones which has merit but I think any good leader will plan for what could go wrong and his leadership at Nokia suggest to me anyway that while he may be good at getting all the business units beating to the same drum the consequence of this is a lack of diversification for when you time things wrong or simply misjudge the market. He'd make a good advisor but he shouldn't be running anything IMO.
 
They are trying to make a broader entertainment play in a larger market, we'll see how that works out for them.

Whilst I mostly agree - remember that the "entertainment play" was Ballmer's strategy and he had an accident with a knife in the back.

His successor either needs to find a different strategy, or a better way to sell the existing strategy to his board.
 
If MS want to make a broader entertainment play (and they do) they need to grow their base fast.

The high price of admission for Xbone is going to work against them more than the esram teething issues and lower GPU FLOP count. The high monthly fees for Gold (which fall greatly over longer sub periods) also make Gold look like terrible value as an entertainment package that you need to pay for *on top* of your other subs.

And the product being gimped but (even more) expensive in Euroland is ... perplexing.

MS are doing a shaky job of bridging Game <-> Entertainment IMO.
 
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.

That analyst is either an idiot or a stalking horse for the folks that want to divest xbox. Probably both.

Live probably generates 500 million margin per year or more.
MS gets 8-10 margin per software disc pressed
MS makes bank off of publishing
MS makes 30% margin off all xbla sales
At this point, hardware probably makes a weighted average margin of $50 per console.

At this point the XBOX division probably makes 1.5 Billion or more per year. I could easily see the 360 business having made 6-8 billion in profit over the last 5 years. Take away a billion or so in xbox1 R&D and you still have a ton of profit.
 
The EDD division has been profitable every year since fiscal year 2008. Im not sure how they are failing or its a distraction.
Couple tens of million in profits or losses last two years, on billions in revenue ... it does fuck all for them, certainly doesn't put them in the black from their initial investments and cluster fucks.

It's a distraction purely because it doesn't do anything for them, it does take management time, it does affect how they design consumer windows (DirectX12 wherefore arth thou?).
And that lies the problem. The motivation for pushing the sell off of Xbox or Bing has nothing to do with MS revenue and profit generation, but the desire of shareholders to see the value of their shares increase.
Assuming rational markets for a moment, if the stock value rises after the sale then the market thinks either someone else can run it better than them and is thus offering a higher price for it than it's value to Microsoft, or it has negative effect on Microsoft's business to begin with. Otherwise it would be simply a zero sum game.
 
I think MS primary motivation for the xbox was they were worried about sony getting a foothold in the living room (which become more like PC's) and so it was some counter

funnily they were late and missed the 20 trillion ton gorrilla that is smartphones etc which was the real competition to PC's and not game consoles
 
It's a distraction purely because it doesn't do anything for them,

hmmmm

**** Turns on windows phone.... big xbox video tile , big xbox live tile , big xbox music tile*******

**** Turns on pc.... big xbox video tile , big xbox live tile , big xbox music tile*****

The xbox brand even with its dings from the drm fiasco is still their best brand and has the best mind share . To say it does nothing for htem is a bit silly
 
hmmmm

**** Turns on windows phone.... big xbox video tile , big xbox live tile , big xbox music tile*******
Small fry compared to the 800 pound gorillas ... they can't use that as leverage to sell windows and windows phone. They were already forced to port xbox music to competitor platforms ...
 
Small fry compared to the 800 pound gorillas ... they can't use that as leverage to sell windows and windows phone. They were already forced to port xbox music to competitor platforms ...

xbox is a brand that is growing vs windows which is shrinking. . These investors only care about short term money not about the actual company they invest in
 
They are independent brands which don't feed each other ... whether you have xbox services on your windows desktop from Microsoft xbox or whatever xbox in the end doesn't matter. If Microsoft can get a fair price for the xbox, and in the current IPO market they almost certainly can, both brands might be better off (unless the xbox somehow finds itself needing a massive subsidy AGAIN).
 
When EDD cost Microsoft $1.15 billion in write-offs for warranty repairs, that was a big deal. When Surface cost $900 million in price adjustment of unsold inventory, that was a big deal too. I don't see how on earth MS can hide $2 billion in losses without someone *actually* finding out, not speculating it's disappearance. Not to mention, this would be the most profitable time period in a consoles life, especially since the Xbox 360 has only had one official price drop in EIGHT years. This thing is making money left and right. And at worst, the R&D for the Xbox One is maybe $1 billion. And Microsoft is doing the radical thing and actually attempting to make a profit on each box!

As for the Elop thing, I don't see in what universe it makes sense to sell the only consumer product your customers love which is also a portal to other services you sell, not when the company has just bought another device company, not when your company slogan is now being for "devices and services". Oh, and there is no way Bill or Steve would let the axe it. Period.

Investors want short term gains. The stock popping this year should quell them for a while.
 
They are independent brands which don't feed each other ... whether you have xbox services on your windows desktop from Microsoft xbox or whatever xbox in the end doesn't matter. If Microsoft can get a fair price for the xbox, and in the current IPO market they almost certainly can, both brands might be better off (unless the xbox somehow finds itself needing a massive subsidy AGAIN).

The Xbox One OS and dev tools are too integrated with the Operating Systems group that runs Windows (and now Windows Phone) to make ripping them apart feasible. No investor knows that but any buyer who does their due diligence would immediately see that as greatly devaluing their purchase or as a showstopper. If the don't, they are idiots.
 
When EDD cost Microsoft $1.15 billion in write-offs for warranty repairs, that was a big deal. When Surface cost $900 million in price adjustment of unsold inventory, that was a big deal too. I don't see how on earth MS can hide $2 billion in losses without someone *actually* finding out, not speculating it's disappearance. Not to mention, this would be the most profitable time period in a consoles life, especially since the Xbox 360 has only had one official price drop in EIGHT years.

None of Sherlund's numbers add up. He either has an agenda or is an incompetent idiot.

Cheers
 
I don't know if he's right but he's made a career of covering MS, since at least the early 90s.

So he should have as much knowledge of Microsoft's finances as any other outsider.

Either that or all the investment banks who've employed him for decades are incompetent.
 
I wonder if MS's marketing and exclusive-content budget has something to do with it?

I mean they have sold quite a few Xboxes and other entertainment devices, but does it make up for the amount of money spent to create some semblance of brand-awareness?
 
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I wonder if MS's marketing and exclusive-content budget has something to do with it?

I mean they have sold quite a few Xboxes and other entertainment does, but does it make up for the amount of money spent to create some semblance of brand-awareness?

Where do you think the xbox marketing budget comes from?
 
I still fail to understand how the Xbox related business in particular continues to generate losses. I can understand their entertainment division as a total. But not the XBOX products and services. The RROD has disappeared very very long ago
 
I don't know if he's right but he's made a career of covering MS, since at least the early 90s.

Revenue and Gross Margin for FY14Q1 (quarter ending september 30th 2013) is here

Revenue from Android ends up in D&C Licensing, which has nothing to do with XBox, - at all. Also, I can find zero confirmation of $2B/year in Android patent license fees.

XBox hardware revenue , revenue from 2nd. and 3rd party games and Live subscription is in the D&C Hardware segment. Here you also find the Surface boat anchor which is the likely culprit for the lower gross margin in this segment.

Xbox Live transactions is found in the D&C Other segment as is 1st party game revenue (are there any left besides 343 Industries ?).

AFAICT, Sherlund gets his numbers from his backside.

Cheers
 
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