How much money is MS losing on 360 production?

[Acert93]

What I could dig up:

• MS shipped 1.8M Xbox 360's in Q4
• The cost of producing the Xbox 360 was $682M in Q4 alone ($1.64B over the last 12 months; Q4 total losses for the Xbox division were $414M)

So, is that 682M in losses /after/ console sales, or is that total cost to produce the 1.8M units and not counting sales of the console?

If the former it looks like MS is losing $379 per console, and depending on how much retailers are paying (saw some bulk prices in the $350 range so retailers may be making some money on them) it looks like a safe bet that the 360 would be costing MS about $500-600 to produce. If the later it would indicate the 360 isn't too expensive to product but sales of software and hardware were pretty slow.

Anyone better at reading financials have some thoughts on this? Obviously it is all guestimating, but now that MS is being more "open" it could be a good time to get a better idea of how much it is costing them to produce these and when we may see a price cut (my guess is 2007 sometime after the 65nm shrink).

 

[RancidLunchmeat]

Well... if what BenSkywalker said was true, that stores don't pay for units until they are sold, then MS couldn't include sales figures in those losses.

Essentially, the units would be considered WIP and should be listed on their balance sheet as an asset or liability (in this case.. an asset), rather than income on their P&L.

So I'd say right now they have expenses that aren't offset by income because the vendors don't pay for units until they sold, which indicates a delay that is probably at least monthly (if not quarterly).

 

[ERP]

FWIW I think historic timing of price cuts is probably a better indicator of when we'll see one. From that standpoint I'd expect Oct 2007'ish, or E3 2007 depending on Xmas sales and how Sony is doing.

I would very much doubt that unless you're counting development expenses MS are loosing $300+ per unit. You can figure they make $9 or $10 per software unit manufactured (more on first party titles) and they probably never expect to make money (including software royalties) on the first 2 or 3 million units shipped.

Financial statements are tricky things for public companies, if they have a loss they will want to write off as much "cost" in a single quarter/FY as posible, this makes subsequent quarters look better. And if you're going to take the hit in the market you might aswell take all of it in one go. As a reult figures tend to skew one way or another.

 

[Acert93]

Thanks Rancid. Interesting points, and would make estimates a little more difficult, although the 1.64B in losses on hardware on 5M units (how many sold?) does indicate there is some sort of loss there. Even if we were to exclude Q4 totals, that is 3.2M units and ~960M in losses, which comes out to about $300 per unit. Now Tom's hardware is calling that "cost of producing" which I take as a "loss" after sales and not just raw production costs considering MS's Home and Entertainment divisions net losses.

Edit: Thanks ERP! Good points, especially your insights on the first couple million units! Your guess on price cuts is what I have been thinking and lines up well with the PS2, last gens first console. They waited a while for their first big cut in the US (~E3 2002, $299 to $199) but then had a pretty consistant yearly reduction from there on out.

 

[Bobbler]

What I could dig up:

• MS shipped 1.8M Xbox 360's in Q4
• The cost of producing the Xbox 360 was $682M in Q4 alone ($1.64B over the last 12 months; Q4 total losses for the Xbox division were $414M)

So, is that 682M in losses /after/ console sales, or is that total cost to produce the 1.8M units and not counting sales of the console?

If the former it looks like MS is losing $379 per console, and depending on how much retailers are paying (saw some bulk prices in the $350 range so retailers may be making some money on them) it looks like a safe bet that the 360 would be costing MS about $500-600 to produce. If the later it would indicate the 360 isn't too expensive to product but sales of software and hardware were pretty slow.

Anyone better at reading financials have some thoughts on this? Obviously it is all guestimating, but now that MS is being more "open" it could be a good time to get a better idea of how much it is costing them to produce these and when we may see a price cut (my guess is 2007 sometime after the 65nm shrink).

I'd say those numbers would pretty much have to be after sale of console -- it says 1.8m Shipped, so from MS' perspective they've been sold to someone (the retailer). The wording of that part is sort of questionable -- I'm not even sure if they don't mean "cost of producing X360s rose by $682m in the 4th quarter alone" (it seems like it could be that), which would mean we still don't even have a solid number... just that the HE division brought in $1.12bln and ended up losing $414m and that the rest of the division shows rather nice profits.

In that supposed $379 lost per console, you've got things like publishing of games, marketing, and whatever else the Xbox division spends to think about too.

 

[Powderkeg]

What I could dig up:

• MS shipped 1.8M Xbox 360's in Q4
• The cost of producing the Xbox 360 was $682M in Q4 alone ($1.64B over the last 12 months; Q4 total losses for the Xbox division were $414M)

So, is that 682M in losses /after/ console sales, or is that total cost to produce the 1.8M units and not counting sales of the console?

None of the above.

The Home and Entertainment Division took those losses, but not just from the 360.

For 5 months of the fiscal year there was just the Xbox being sold, no 360 sales at all until mid-Q2 of their fiscal year. Even after the 360 went on sale the Xbox was still being sold, and still taking massive losses.

And then there are the PC games as well. Those are also part of the same division, as are other MS products not related to gaming such as their keyboards and mice, Encarta, etc.... Also they've been developing that small handheld device (Zune).

So before you could come up with anything meaningful about the 360 you would first have to remove all of the non-360 related expenses which that site failed to do.

 

[Acert93]

So before you could come up with anything meaningful about the 360 you would first have to remove all of the non-360 related expenses which that site failed to do.

You could be right, although the numbers do not add up quite right (e.g. Q4: $1.14B revenue - $682M losses != $414M total posted loss), although it is close ($8M off which makes me think you are probably right). They do seem to be pretty specific about Xbox 360 production costs (losses) versus the Home and Entertainment divisions operating losses. If they are generalizing the division costs as "Xbox 360 production" you are absolutely right and that is a VERY poor summary indeed as the division has a ton of other costs as you noted.

Oh well, looks like I am not closer to getting to the bottom of this than I was before. Thanks Powderkeg.

 

[Powderkeg]

You could be right, although the numbers do not add up quite right (e.g. Q4: $1.14B revenue - $682M losses != $414M total posted loss), although it is close ($8M off which makes me think you are probably right). They do seem to be pretty specific about Xbox 360 production costs (losses) versus the Home and Entertainment divisions operating losses. If they are generalizing the division costs as "Xbox 360 production" you are absolutely right and that is a VERY poor summary indeed as the division has a ton of other costs as you noted.

Oh well, looks like I am not closer to getting to the bottom of this than I was before. Thanks Powderkeg.

Well, the best thing to do would be to ignore the article, and check MS's own fiscal year and quarterly reports.

And just to add to the confusion, MS changed the way they structure Financial Reports. So you may need to read that to find out if this restructuring also effected the divisional numbers and if so, how.

 

[Bobbler]

You could be right, although the numbers do not add up quite right (e.g. Q4: $1.14B revenue - $682M losses != $414M total posted loss), although it is close ($8M off which makes me think you are probably right). They do seem to be pretty specific about Xbox 360 production costs (losses) versus the Home and Entertainment divisions operating losses. If they are generalizing the division costs as "Xbox 360 production" you are absolutely right and that is a VERY poor summary indeed as the division has a ton of other costs as you noted.

Oh well, looks like I am not closer to getting to the bottom of this than I was before. Thanks Powderkeg.

Oddly, you did the same goofy math as me (I was even about to post that too), until I realized that the $682m was the value of the increase in loss compared to previous quarters, not the actual loss.

$1.14bln - $682m is still a positive value (but does end up around $4XXm, but it's a positive value still) -- you'd need around $1.6bln spent this quarter overall to get your $414m loss (which I think that $1.64bln value might be stating -- it's just very poorly worded).

 

[Acert93]

Oddly, you did the same goofy math as me (I was even about to post that too), until I realized that the $682m was the value of the increase in loss compared to previous quarters, not the actual loss.

$1.14bln - $682m is still a positive value (but does end up around $4XXm, but it's a positive value still) -- you'd need around $1.6bln spent this quarter overall to get your $414m loss (which I think that $1.64bln value might be stating -- it's just very poorly worded).

Where is my hole...

 

[zed]

Xbox revenue increased mainly due to the shipment of 1.8 million Xbox 360 consoles, which exceeded the number of first generation consoles sold in the same period of the prior year. In addition, Xbox 360 consoles sell at a higher average price than first generation consoles. In the fourth quarter of fiscal 2006, the availability of Xbox 360 consoles was no longer limited by supply constraints.

2 points
A/ theyve actually stuck numbers in the report, very strange for ms, check out the earlier reports wrt xbox, numbers werent mentioned, just general broad statements eg 'positive outlook ...', ' best selling game launch ever ...' without any actual figures, their financial reports looked more like marketting spin. hopefully theyll keep to the transparency in future.
B/ no more supply constraints