Microsoft Financial Results, Q1 2008

[Carl B]

Thought I'd set this up in advance; earnings have been announced, viewable here:

http://www.microsoft.com/msft/earnings/FY08/earn_rel_q1_08.mspx

Of note, entertainment division had a profit of ~$165 million vs a loss of ~$142 million last year. As the conference call proceeds (starts in 1/2 hour), I'll see if they break that down at all, but it's safe to say that 360 had a solidly profitable quarter on the back of Halo 3.

 

[Shifty Geezer]

A profit?! Oh, of course, the Halo effect, same as Halo 2. Next quarter ought to be their best chance as being profitable in normal service, and if they manage it then, they may actually become a long-term profitable venture!

 

[aselto]

1.8M consoles shipped.

 

[Acert93]

Halo 3 was out 7 days by September 30th. So you can look at the cup half full (Microsoft about broke even without Halo 3) or half empty (Microsoft makes a marginal profit with Halo 3 as well as strong releases in Bioshock, Forza, and Madden). If you are a MS investor I guess it is all full as they actually made a profit Only $4.735B more to break even!

Q2 (holidays) should be profitable as well, as Halo should sell nearly as many copies through the end of the year as it did in week 1 (and possible less advertising costs), but this does beg the question: how are they going to sustain profits in Q3 and Q4? MS isn't releasing a lot of internal titles. I guess if royalties can help them break even in the slow months they will be sitting well--but how does a much needed price drop factor into that? 65nm Xenos is coming in like August. One thing is clear: MS is making (and not making) a lot of moves and decisions based on profitability in FY2008. And I think the impact isn't quite positive and fairly short sighted in regards to generational profits.

 

[dobwal]

A profit?! Oh, of course, the Halo effect, same as Halo 2. Next quarter ought to be their best chance as being profitable in normal service, and if they manage it then, they may actually become a long-term profitable venture!

Well next quarter will include the holiday season so a pretty big uptick in both hardware and software.

 

[iceberg187]

Halo 3 was out 7 days by September 30th. So you can look at the cup half full (Microsoft about broke even without Halo 3) or half empty (Microsoft makes a marginal profit with Halo 3 as well as strong releases in Bioshock, Forza, and Madden). If you are a MS investor I guess it is all full as they actually made a profit Only $4.735B more to break even!

Q2 (holidays) should be profitable as well, as Halo should sell nearly as many copies through the end of the year as it did in week 1 (and possible less advertising costs), but this does beg the question: how are they going to sustain profits in Q3 and Q4? MS isn't releasing a lot of internal titles. I guess if royalties can help them break even in the slow months they will be sitting well--but how does a much needed price drop factor into that? 65nm Xenos is coming in like August. One thing is clear: MS is making (and not making) a lot of moves and decisions based on profitability in FY2008. And I think the impact isn't quite positive and fairly short sighted in regards to generational profits.

Rare has 4 different studios and they will have a few games next year. They have a pretty solid lineup for 2008. They will be fine.

 

[AlphaWolf]

Halo 3 was out 7 days by September 30th. So you can look at the cup half full (Microsoft about broke even without Halo 3) or half empty (Microsoft makes a marginal profit with Halo 3 as well as strong releases in Bioshock, Forza, and Madden). If you are a MS investor I guess it is all full as they actually made a profit Only $4.735B more to break even!

Q2 (holidays) should be profitable as well, as Halo should sell nearly as many copies through the end of the year as it did in week 1 (and possible less advertising costs), but this does beg the question: how are they going to sustain profits in Q3 and Q4? MS isn't releasing a lot of internal titles. I guess if royalties can help them break even in the slow months they will be sitting well--but how does a much needed price drop factor into that? 65nm Xenos is coming in like August. One thing is clear: MS is making (and not making) a lot of moves and decisions based on profitability in FY2008. And I think the impact isn't quite positive and fairly short sighted in regards to generational profits.

Halo3 launched on the 25, so that's only 6 days.

As for sustaining profitability over the soft months its basically down to continuing to release quality titles and hardware cost reduction. With the install base padded more by xmas sales their really isn't a lot of reasons they shouldn't continue to be profitable. The holidays are always going to be the big quarter and they wont be talking about their q3 numbers in comparison to q2, but rather in comparison to their q3 07 numbers (which were pathetic iirc). Again q4 will look like a big improvement (even with a loss) with the $1billion charge for warranty charged this year (that was q4 wasn't it?).

 

[patsu]

How do they structure the division ? Does Windows Media, Zune, PlayforSure, etc. count under the entertainment arm ?

 

[RobertR1]

I'm sure it's a small win for them internally to get profitable. If they can sustain it for another 2 quarters they should be well on their way. Again, I don't like that Zune and such are a part of this. No way of knowing if they aid of bleed the 360 numbers.

As a whole, what a monster! Christ!

 

[Carl B]

It's worth noting that in that six days of Q1 for which it counted, MS recorded ~$330 million in revenue from Halo 3.

 

[Shifty Geezer]

Well next quarter will include the holiday season so a pretty big uptick in both hardware and software.

Exactly. But it's still a moral victory if MS turn a profit over Christmas as IIRC the only time they ever made a profit on XB in a quarter was with Halo 2. Of course with XB, if they ever got good sales they lost money, so the holiday season was actually a negative effect in that regard! If they can't manage a profit on their third Christmas, I'm sure they'll be disappointed.

 

[RobertR1]

It's worth noting that in that six days of Q1 for which it counted, MS recorded ~$330 million in revenue from Halo 3.

Yep but we'd have to break that down in terms of roylaties and measure it up against advertising. Having said that, they'd likely be dancing the red/black without those 6days of Halo3. Let's not forget the hardware sales boost from Halo3. The more you analzye the more complicated it gets but I enjoy such things

 

[AlphaWolf]

It's worth noting that in that six days of Q1 for which it counted, MS recorded ~$330 million in revenue from Halo 3.

Did they? I saw they generated 300+ million in sales, but thats not all MS revenue.

 

[AlNom]

How does that billion dollar loss with the extended X360 warranty figure into the reports

 

[aselto]

Exactly. But it's still a moral victory if MS turn a profit over Christmas as IIRC the only time they ever made a profit on XB in a quarter was with Halo 2. Of course with XB, if they ever got good sales they lost money, so the holiday season was actually a negative effect in that regard! If they can't manage a profit on their third Christmas, I'm sure they'll be disappointed.

It all comes down to hardware manufacturing cost. They only switched to 65nm CPUs only recently (July and August manufactured units are still 90nm), so with that slight price drop that 360 has seen in August hardware itself should be finally profitable. If it is profitable, then the quarter should be profitable as well as revenues will drastically increase.

How does that billion dollar loss with the extended X360 warranty figure into the reports

That's last fiscal year.

 

[patsu]

Since this is Q1, I reckon that 1b loss was written into last fiscal year (So they could have lumped their losses there ;-) ).

Also, where is Windows Media related business now ? in MS's OS division or in Entertainment division ?

 

[Carl B]

Did they? I saw they generated 300+ million in sales, but thats not all MS revenue.

Indeed they did. That's from the conference call straight to my fingers, and then direct to you.

$330M in revenue.

 

[aselto]

Indeed they did. That's from the conference call straight to my fingers, and then direct to you.

Any word on console shipments forecasts?

 

[dobwal]

Halo 3 was out 7 days by September 30th. So you can look at the cup half full (Microsoft about broke even without Halo 3) or half empty (Microsoft makes a marginal profit with Halo 3 as well as strong releases in Bioshock, Forza, and Madden). If you are a MS investor I guess it is all full as they actually made a profit Only $4.735B more to break even!

Q2 (holidays) should be profitable as well, as Halo should sell nearly as many copies through the end of the year as it did in week 1 (and possible less advertising costs), but this does beg the question: how are they going to sustain profits in Q3 and Q4? MS isn't releasing a lot of internal titles. I guess if royalties can help them break even in the slow months they will be sitting well--but how does a much needed price drop factor into that? 65nm Xenos is coming in like August. One thing is clear: MS is making (and not making) a lot of moves and decisions based on profitability in FY2008. And I think the impact isn't quite positive and fairly short sighted in regards to generational profits.

The 360 has a rather large list of title due or may come in 2008 with potential to sell well.

GTA
Army of Two
Alan Wake
SC Conviction
Too Human
Halo Wars
UT3
Turok
Tom Clancy's End War
Star Wars the Force Unleashed
Star Wars Battle Front III
Silent Hill 5
Saints Row 2
Ninja Gaiden 2
Merc 2
Soul Caliber 4
Huxley
FallOut 3
Fable 2
Devil May Cry 4
Brother in Arms
Banjo Kazooie 3
ABP

Some are destined for Q3/Q4 and some may slip to 2009, but we know GTA4 (the biggest title) will be Q1/Q2 and titles like Army of Two that have slip to 2008 will show in Q1/Q2. Im sure others are bound to be in the first 6 months of 2008

 

[Carl B]

Any word on console shipments forecasts?

I stopped listening because I need to go eat; I'll be able to pick up where I left off later. But they reiterated the strong line-up for Q4, mentioned the industry-leading attach rates, and said that consumers have taken well to the recent price cuts.

So, without being able to quote exact figures (yet), I have to imagine they're optimistic about holiday sales.