Xbox Operation to Turn Profitable by September 2007

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MasterDisaster

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Microsoft is expected to report lackluster results Thursday ... but Wall Street isn't likely to mind.
It's 2007 investors and analysts are thinking about. That's when Vista, the first major update of the Windows operating system since 2001, finally rolls out.
In addition, the world's largest software maker will roll out the latest version of its Office software suite next year.

Also contributing to the upbeat outlook for Microsoft is its Xbox gaming device, which looks poised to take some market share from Sony's PlayStation this holiday season, analysts said.
Microsoft still loses money on each Xbox console, but those losses are starting to diminish, Goldman Sachs analyst Rick Sherlund wrote in a recent research note. Sherlund, who has a "buy" rating on Microsoft, expects the company's Xbox operation to turn profitable by the September quarter of 2007.
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http://money.cnn.com/2006/10/24/technology/microsoft_walkup/index.htm?section=money_latest
 
In this vein, a little more detail is now contained in the updated gamasutra report on ms quarterly earnings

http://www.gamasutra.com/php-bin/news_index.php?story=11441

[UPDATE: In the Microsoft investor conference call following the results, CFO Chris Liddell commented on reduced Xbox 360 hardware manufacturing costs of recent, explaining: "We are seeing lower cost per console... we're doing slightly better than we hoped for."

He also reaffirmed that, while initial costs were a bit more than Microsoft expected, the company expected the Xbox 360 to be "cost neutral over the console's life" - a break even prospect on hardware alone. Liddell also mentioned that Xbox 360 attach rates grew to around 5 games per hardware unit in the quarter.]

Comments relayed by Microsoft's John Porcaro also revealed that Xbox 360 will be available in 36 countries for the holiday and our installed base through September is 6 million consoles worldwide (3.6 million in North America, 1.7 million in Europe and approximately 700,000 in the rest of the world.)
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At first I was pretty unimpressed by the break even hardware pledge, then I realized that includes all the future price drops.

Sounds like a good recipe, that would mean software would be pure profit.
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LIVE SEX WEBSHOWS
 
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inefficient said:
The analyst seems to be assuming that MS will not lower their retail prices.
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While possible, I don't see it as a given. Analysts are not the sharpest tacks in the box, but I would expect them to see that coming. MS is moving the 360 to 65 nm at some point next year, and that should help drop costs.
 
Inane_Dork said:
While possible, I don't see it as a given. Analysts are not the sharpest tacks in the box, but I would expect them to see that coming. MS is moving the 360 to 65 nm at some point next year, and that should help drop costs.
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Q1 2007 is the slated transition for Xenon (Charter pushes those out). Have not heard much on Xenos, but with ATI transitioning to 65nm in 2007 the parent die seems pretty certain, although the daughter die from NEC may be another issue. I wonder if it will take th 55nm jump at the end of 2007?
 
I would think jumping between process technology more than once a year is not financially beneficial, but that's nothing more than a guess on my part. 65 nm will be plenty for 2007, I would imagine. I don't think they'll need to shrink again for more than a year.

And I do wonder if the GPU will get shrunk as well.
 
inefficient said:
The analyst seems to be assuming that MS will not lower their retail prices.
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Given the PS3 price they won't have to. I assume MS originally expected a lower PS3 price and were ready for a price drop this holiday season.

It's a pretty good outlook really. And an installed base of 6M is not bad either.

I think they'll drop the price in the first half of next year. Maybe in time for the PS3 launch in Europe...

Re: hardware revisions - is the power brick still as huge as one year ago?
 
patsu said:
Great job ! It's good to know that MS can settle down so quickly. Looks like their strategy is paying off. :D
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It´s the end of gaming as we know it. I can´t wait for the XBOX 5 that will last 12 years while Microsoft milks every penny from it.
 
pipo said:
Given the PS3 price they won't have to. I assume MS originally expected a lower PS3 price and were ready for a price drop this holiday season.

It's a pretty good outlook really. And an installed base of 6M is not bad either.

I think they'll drop the price in the first half of next year. Maybe in time for the PS3 launch in Europe...

Re: hardware revisions - is the power brick still as huge as one year ago?
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MS has not sold 6 million 360s to consumers yet. ;)
 
Actually if there are over 4 million people using xbox live then the 6 million number is SOLD to consumers not shipped,despite how hard people are trying to dispute that.MS announced some time ago that around 70% of the people that own an xbox360 use live.
 
fulcizombie said:
Actually if there are over 4 million people using xbox live then the 6 million number is SOLD to consumers not shipped,despite how hard people are trying to dispute that.MS announced some time ago that around 70% of the people that own an xbox360 use live.
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I thought people use Xbox Live on their Xbox 1 consoles too.
 
mckmas8808 said:
Yeah shipped equals sold to them. It's good for MS either way, but didn't want you guys to be mislead.
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You're right, they've just found a new way to put it. :)

Dean's take on things: http://blogs.mercurynews.com/aei/2006/10/console_wars_a_.html#more

Microsoft has shipped more than 6 million consoles worldwide (3.6 million in North America, 1.7 million in Europe, and 700,000 in the rest of the world). This number is very revealing. It suggests that Microsoft has sold through less than 6 million and that shows it is behind on its goal of hitting 10 million consoles sold by the time Sony sells one (starting Nov. 17). Adam Holt, an analyst at JP Morgan, said in a note that sales were light and Microsoft seemed to be behind its goal.

By June 30, Microsoft is still targeting 13 million to 15 million consoles sold. But it’s going to be hard to hit the 10 million target.
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Still, the GoW thing could be big for them over here in Europe...
 
pipo said:
Given the PS3 price they won't have to. I assume MS originally expected a lower PS3 price and were ready for a price drop this holiday season.
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Althought PS3 is important it isnt the only part of the equation to a price drop, sonner or later they will sell all the consoles that they can at 300/400$ and independent of the PS3 price they will need to lower 360 price, they "only" have the advantage of not being much pressed by PS3 price.
 
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