MS: "Record Revenues" thanks to 360

[Acert93]

cautious as they say, and will probably end up doing 13 million or something and crowing about it. But it does virtually rule out a price drop one would assume.

3M in 6 months would be 500k units a month during the slow time of the year. That seems unlikely unless MS can both a) reduce the retail price and b) deliver some new content in that timeframe that gets some good press / critical praise that can motivate new sales.

An early spring price drop seems questionable, especially with the Charter-65nm-Xenon slide to Q2; and which Winter / Spring game will move significant amount of sales? Lost Planet was good but not critically great, Forza is a big unknown at this point, Crackdown looks good but an aquired taste, Mass Effect and Too Human both seem to be more H2 products, Bioshock has slid to Q3 I believe, Medal of Honor has slid.

MS should get some sales due to the Halo 3 open beta, and the fact the new Halo 2 map pack slated for this summer is "360 only" should also move some people over. But 500k seems like a HUGE mountain at their price and software lineup.

 

[Brimstone]

They'll drop the price twice this year imho.


Two $50 dollar drops.


One 1st half of 2007 to help spur sales, and one at the end of the year to really put the pedal to the metal.

$200 base unit price + Halo 3 + GTA 4 = a lot of markeshare.

 

[Inane_Dork]

$200 base unit price + Halo 3 + GTA 4 = a lot of markeshare.

But they already have a lot of marketshare, and that which they have is skewed to the group that would buy Halo 3 and GTA4. I don't see that MS is pressed to take any particular action yet. Sales are still good. Why reduce price?

I predict that MS will move even further into increasing value without dropping price. The core SKU will drop in price, as that's its intended purpose. The premium SKU, though, is only battling the PS3 which it already undercuts by a significant margin. I bet they'll start packing in games, MS Points, Gold memberships, controllers and whatever else to encourage sales without dropping price.

Really, they're in quite an enviable position.

 

[Acert93]

I look at it a bit differently.

But they already have a lot of marketshare

A lot? They have a nice foothold, but I wouldn't say they have a lot. The market is 150M+ strong, and they have 10M of that. If their goal is to simply outpace the Xbox1 then yeah, they have a lot for their end goal; if their goal is to make significant headway into the market and eat into Sony marketshare, then not so much. By the time the Xbox1 and GCN saw their first January Sony already had over 24M PS2s on the market. So putting it into that perspective I wouldn't say they have a lot of marketshare.

and that which they have is skewed to the group that would buy Halo 3 and GTA4. I don't see that MS is pressed to take any particular action yet.

Quite true that the Halo bunch is already on, or moving toward the 360. MS is forcing the issue even more with the open beta and 360 only Halo 2 maps.

Sales are still good. Why reduce price?

Sales were good in November and December. But the volume size in general isn't very high and the trending isn't a significantly positive one.

I predict that MS will move even further into increasing value without dropping price. The core SKU will drop in price, as that's its intended purpose.

I agree that the Core SKU must drop in price. There is a huge price sensative market that "value" cannot touch. There are physical limits by which people will pay for gifts, presents, and impulse buys.

[qoute]Really, they're in quite an enviable position.[/quote]

Or it could end up being an ugly one.

Wii undercuts the Core and the combination of "hip" and even lower price tag attracts the "fun-cheap-gift" crowd and the "value" crowd look at a $399 Xbox 360 and then look at a $499 PS3 with BluRay and HDMI and all the cross platform titles and, seeing as they are already paying big dollars for value, make the longterm investment.

I think the best strategy for MS is price drops on both SKUs ($199, $299) and justifying the $299 Premium SKU with a much larger HDD (MS makes a killing on Premiums); make sure HDDs are easily available; and finally push hard on Halo 3 and GTAIV. Wii won't have Halo 3 or GTAIV. PS3 will have GTAIV but will cost more to get the experience. But if MS comes in too high on price over Wii they could hurt themselves; and allowing Sony to close the gap -- which I think they will -- could be just as dangerous.

The enviable position that I see MS having is this: They are at a juncture to decide their future.

They can be the one to define price drops and the decisions they make in regards to momentum and word of mouth, and stealing marketshare, will hinge a lot on how aggressive MS is. If they are aggressive early and often they are seen as leading. If they are reacting and don't do enough they allow Nintendo and Sony to move into the driver's seat.

 

[baten]

Really, they're in quite an enviable position.

Actually this is not quite so. The division is under increased pressure from higher up - coming from some of the big shareholders - to turn profitable as soon as possible. They have just posted another loss, it's almost 6 years since Xbox is loosing money year after year, and there are guys up there who cannot justify these loses based on prospects of future earnings - which are not certain in any way. Shareholders want to make money, they can understand strategy of investing in a market, but they also want to see results at some point (by which they understand profits, not marketshare).

The cost of manufacture/marketing cannot be upset, at this moment, by the revenues in software - although sales of software have been exceptional (see attach rate).

I think they were pressed to get a revised model, cost optimised, as soon as possible on the market, and to stop pushing the current hardware, that's too costly. By the look of things (reduced sales expectation) we should probably expect it during summer. That's also why most probably a price reduction is out of the question now - unless Sony makes the first move (doubtfull).

They have started preparing for next fall/xmas battle - that will be the first real clash, since Sony will not really fight until then and Wii looks too strong for the moment.

 

[Brimstone]

But they already have a lot of marketshare, and that which they have is skewed to the group that would buy Halo 3 and GTA4. I don't see that MS is pressed to take any particular action yet. Sales are still good. Why reduce price?

I predict that MS will move even further into increasing value without dropping price. The core SKU will drop in price, as that's its intended purpose. The premium SKU, though, is only battling the PS3 which it already undercuts by a significant margin. I bet they'll start packing in games, MS Points, Gold memberships, controllers and whatever else to encourage sales without dropping price.

Really, they're in quite an enviable position.

North America is fine but a price reduction would only help keep up the pace.

Europe and Japan would benifit from a lower price point.


In Europe they've had two X-mas seasons at full price. This is a swing region where MS can't screw up. They have to play hardball.

 

[Platon]

North America is fine but a price reduction would only help keep up the pace.

Europe and Japan would benifit from a lower price point.


In Europe they've had two X-mas seasons at full price. This is a swing region where MS can't screw up. They have to play hardball.

Agreed, the latest they should have a price cut here is in May, but I guess it depends how well the PS3 is doing as well. I guess they will wait and see if the PS3 will have a crazy couple of launch weeks only or whether it might be having continous high sales and after that determine their strategy...

 

[Capeta]

I don't see a price drop until fall to coincide with possible price drops from Nintendo and SONY. I also see a new redesigned Xbox360 Mini in the works using 65nm chips.

As far as that "friend from IBM" is concerned, how would IBM know about any HDD upgrade when the HDDs aren't even made by them?

 

[London Geezer]

MS loses a hell lot of money!!!

MS welcomes you to their money-printing business. (yes, that's 24 thousand dollars for a license)

Cost of manufacture per copy: < $1
Number of offices forced by law to buy one license (not a 24k one of course, that's a SQL license - which a typical office still needs to buy anyway for their internal servers) of MS software for each computer: millions.
Number of computers: billions.
Smile on Bill Gates' face: priceless.

MS doesn't lose money.
The Xbox business loses MS a bit of money. Not much compared to their profits. And much less than it used in the last generation.

MS makes loads of money.

 

[Acert93]

Actually this is not quite so. The division is under increased pressure from higher up - coming from some of the big shareholders - to turn profitable as soon as possible.

MS already moved back the annual profits expectations for the division from FY 2007 to FY 2008. People keep repeating, "MS has to earn money!" but MS knows fullwell that it is a race and that the biggest profits are at the tail end; these tailend profits are from cost parity with the hardware, robust publisher support and high selling exclusive titles on a very large install base. Moves that detract from the goal of a large install base later in the platforms life can be viewed as neutering platform life profits.

MS doesn't lose money.
Xbox business loses MS a bit of money.
MS makes loads of money.

And it is also relevant to MS to see the Xbox as an investment that has R&D and mindshare benefits outside the Entertainment division. It is their portal to the living room, and as MS recently put it, their loses PALE in comparison to purchasing Nintendo (like $15B) to reach the exact same goals. So it is all relative. If I was a MS investor I would want MS to push hard with the Xbox initiative as I see it and Live as central, not perephrial, to MS's future.

 

[London Geezer]

(edited the post, bit more entertaining now)

 

[Gubbi]

And it is also relevant to MS to see the Xbox as an investment that has R&D and mindshare benefits outside the Entertainment division. It is their portal to the living room, and as MS recently put it, their loses PALE in comparison to purchasing Nintendo (like $15B) to reach the exact same goals.

That is something people ignore. The balance sheets shows profits and losses, but it does not show the value that the XBox builds as a brand and as a division within MS. If it were to be sold off, the price for the XBox activities would likely be significantly higher than the sum of losses so far for MS.

As for the income statement in question, who knows how much they lost on Zune. It's impossible to tell if 360 is profitable.

Cheers

 

[baten]

MS already moved back the annual profits expectations for the division from FY 2007 to FY 2008. People keep repeating, "MS has to earn money!" but MS knows fullwell that it is a race and that the biggest profits are at the tail end; these tailend profits are from cost parity with the hardware, robust publisher support and high selling exclusive titles on a very large install base. Moves that detract from the goal of a large install base later in the platforms life can be viewed as neutering platform life profits.
And it is also relevant to MS to see the Xbox as an investment that has R&D and mindshare benefits outside the Entertainment division. It is their portal to the living room, and as MS recently put it, their loses PALE in comparison to purchasing Nintendo (like $15B) to reach the exact same goals. So it is all relative. If I was a MS investor I would want MS to push hard with the Xbox initiative as I see it and Live as central, not perephrial, to MS's future.

Anybody with even marginal knowledge of this industry would agree with you.

Unfortunately for the Xbox division, most of the guys that they report to dont get it. They see losses year after year and their understaning of the what the future holds, or what is really at stake here, is at the best limited. I guess this is the reason Bill is sometimes coming to the support of the division, he's the only one that really gets it.

 

[pipo]

As for the income statement in question, who knows how much they lost on Zune. It's impossible to tell if 360 is profitable.

Indeed. Looking at the XBLM projections alone I'd say they'll make a nice buck this year.

 

[deathkiller]

and as MS recently put it, their loses PALE in comparison to purchasing Nintendo (like $15B) to reach the exact same goals. So it is all relative.

Nintendo value has doubled since a year ago so if MS had brought Nintendo a year ago and the value of their businesses had increased at the same pace they would make $15B in profit. Buying companies only produce loss if you pay more than their value as part of the main company.

 

[Rangers]

Well now there was something brought up by Gamespot I find interesting, I guess there is an idea out there maybe ms is clearing out the channel (with the low ship target) in prepping for new sku's/price drops.

Just another idea to throw out there. Kinda sounds like a rose colored glasses scenario to me, but it's possible.

 

[baten]

Nintendo value has doubled since a year ago so if MS had brought Nintendo a year ago and the value of their businesses had increased at the same pace they would make $7B in profit. Buying companies only produce loss if you pay more than their value as part of the main company.

Also, lets take into account that MS/nint would have had about 50 mil consoles (let's call them x-cubes) to compete against Sony. It was a lost opportunity for MS - they would have done it, they just thought they didnt need it, at that time.

 

[liolio]

MS welcomes you to their money-printing business. (yes, that's 24 thousand dollars for a license)

Cost of manufacture per copy: < $1
Number of offices forced by law to buy one license (not a 24k one of course, that's a SQL license - which a typical office still needs to buy anyway for their internal servers) of MS software for each computer: millions.
Number of computers: billions.
Smile on Bill Gates' face: priceless.

MS doesn't lose money.
The Xbox business loses MS a bit of money. Not much compared to their profits. And much less than it used in the last generation.

MS makes loads of money.

Hey, are you trying to call me stupid?

I do know that MS makes an awesome lot of money, usualy has a whole company theirs profits are 25% of the CA
It wasn't clear for you but I was speaking of the division who deals with xbox, zune, etc...
Anway, i'm kidding, no offense

 

[Jesus2006]

Well i hope this was not yet posted, but here (german) it says that MS "sold" 10,4 million units, but at the same time they claim that local vendors stocks are full now and that this was the reason why the could not sell more than 12 million till June 2007 (= 1,6 Mio from now - worldwide in 6 months ~ 270k per month?) and reverted their formerly announced plans to sell 13-15 million until June.

That means that "sold" 360 are only shipped and not sold after all?

 

[StefanS]

That means that "sold" 360 are only shipped and not sold after all?

Yep, 10.4 million consoles are shipped from the distribution centers, i.e. sold to retailers (compared to the Sony shipped=from the factories). MS themselves said there's about 6 weeks lag between this "sold" and sold to consumers.