Xbox Q1 Losses Up From Last Year

[cybamerc]

Chap's thread from a while back was closed so here's a new one.

http://microsoft.shareholder.com/re...789019&FID=1193125-03-80353&SID=03-00

Home and Entertainment:
Q1 2003: $176 million
Q1 2002: $172 million

Thanks to gahiggidy for the link.

 

[hey69]

i believe they are talking about a loss there.


"Home and Entertainment operating loss for the first quarter of fiscal year 2004 increased 11% from the first quarter of fiscal year 2003 driven by 17% growth in operating expenses related to increased product costs associated with higher consoles sold and higher sales and marketing expenses, partially offset by 20% growth in revenue."


Home and Entertainment
revenue 2002 2003 operating income (loss)2002 2003
485 581 (245 ) (273 )

*in millons $

 

[Johnny Awesome]

Water under the brigde my friends.

If MS was worried about these losses, why did they buy Rare and contract IBM, ATI, and SiS for Xbox 2?

I predicted long ago that MS would lose $2 billion in the first two years and break even in year three. We'll see if that comes to pass. They should make a small profit in year 4 and good profit in year 5 on Xbox, but Xbox 2 investments will probably push year 5 into a loss position.

Regardless, Xbox 2 is happening which is the only thing that matters to gamers.

 

[nobie]

I think most of the losses MS suffers from XBox are due to the fact that there's a built-in hard disk. That's got to raise manufacturing cost quite a bit.

 

[hey69]

off course, what is 200mil when you have over 50billion

 

[cybamerc]

Johnny Awesome:

> If MS was worried about these losses, why did they buy Rare and
> contract IBM, ATI, and SiS for Xbox 2?

Xbox 2 development is a clear indication that the economy of the project is starting to become a concern.

> I predicted long ago that MS would lose $2 billion in the first two years
> and break even in year three.

To break even you need to make back the initial investment. That won't happen... ever. And they won't be profitable this year. In fact, it's starting to look unlikely that they ever will.

 

[Fox5]

Why can't they be profitable? They've got xbox live, which has to cost almost next to nothing to run, they've got at least good game sales, and unless they have to make another price break soon, they shouldn't be losing too much on the hardware. If xbox goes for a full 5 or 6 years, it's possible for them to turn around on it.

 

[cybamerc]

Fox5:

> Why can't they be profitable?

They can but it doesn't seem likely that they will. Xbox losses are increasing rather than going down and this at a time where one could reasonably expect it to be turning a profit (if it was run as a viable business that is).

> They've got xbox live, which has to cost almost next to nothing to run

Xbox Live is a joke. The investments have been massive (1+ billion) but consumers haven't shown much interest. The revenue is not worth talking about and I doubt they were making much on the initial Live Kits.

Their goal of having 10 million Xbox Live subscribers by 2007 won't happen unless they start giving subscriptions away (quite possible). It's just an enormous failure but I do have to compliment M$ for their ability to make it seem like a success to gullible media outlets.

 

[Qroach]

They can but it doesn't seem likely that they will. Xbox losses are increasing rather than going down and this at a time where one could reasonably expect it to be turning a profit (if it was run as a viable business that is).

MS didn't plan on breaking even after only two years in teh consle business cybermerc. They knew it was a 5 year up hill battle to find a place in teh market. Xbox losses are supposed to increase! They are still losing money on the console, but less than when they started. The fact loses are going up, is because they are selling MORE consoles at a loss. Cybermerc, I really don't think you're the most objective person around, specifically when it invovles nintndo or MS, but it actually is a viable business. Obviously you've never heard of spending money to make money, and you also forget that taking a loss on teh hardware is common practice.

Xbox Live is a joke. The investments have been massive (1+ billion) but consumers haven't shown much interest. The revenue is not worth talking about and I doubt they were making much on the initial Live Kits.

Xbox live didn't cost a billion dollars to create, setup or operate, get your facts straight. it's essentially a glorified ISP with NOC's (network operation centres) in multiple locations. The only difference is that they aren't providing a network connection, they are providing the database servers and infrastructure to find other people to play with. Between 500,000 and a million subscribers is a good place to be after only a year. As broadband usage increases, so will it's market penetration.

Their goal of having 10 million Xbox Live subscribers by 2007 won't happen unless they start giving subscriptions away (quite possible). It's just an enormous failure but I do have to compliment M$ for their ability to make it seem like a success to gullible media outlets.

A failure? You're looking through frosted gogles as usual. It's an investment towards the future, just like xbox and I'm sure thing will improve, the only thing preventing more people from having it is the broadband penetration.

 

[DemoCoder]

MS isn't worried about the losses. Most MS projects outside of Windows and Office lost money in the short term. But MS is in it for the long term strategic goal of winning the home. They are looking past the profitability of the project, because they want to be in all the devices that control your living room.

Just look at PocketPC. They sold horribly for a long time, now they are selling better than Palms, and MS Smartphones are poised to destroy Nokia/Symbian. But I still doubt their mobile division has recouped the costs of the investment.

MS could operate the XBox project at a loss for 30 years and it wouldn't phase them.

 

[cthellis42]

It's just an interesting counter-point to those who latch onto onto Sony or Nintendo not making as MUCH profit (or even--GASP--taking the first loss ever!) as signs of their near and certain doom. All the big players have a lot invested, can absorb plenty of loss, and are riding things out for the long run.

 

[Qroach]

Who here latches onto to these things as proof nintendo is doomed? of course they aren't doomed, it's just a sign that they aren't invincible like some people seem to think they are. It's the hardcore nintendo fans that like to talk about profit all the time. I personally could care less how much MS loses, specifically when they are expecting to lose money. I'm too busy playing games I like to bother with this argument very often.

 

[Tuttle]

"MS could operate the XBox project at a loss for 30 years and it wouldn't phase them"

That is an inane claim.

Forget about 30 years, the current XBox project's enormous losses are definitely 'phasing' MS and its shareholders.

 

[Jabjabs]

MS said that they would lose $2 billion in the first generation, about 9/10 months ago they then said it would be more like $4 billion, the share holders didn't really mind that at all for some reason... *cough* $10 billion profit each year *cough*.

Come on, its not the first time MS has taken a loss on a product to get a head start as all the other examples people have given have shown. Merely staying in the market long enough is enough to be succesful in the long run, if the name and image of the product hangs arouind for 1, 2, 5 even 10 years people will eventually buy it, and MS know this.

Did people really expect them to launch and make profits from day one? From the first year? Personally the xbox just shows what a sad state the industry is in now days that they have to spend SO much just to launch an excellent machine, its a real shame really.

The question I have is why do people still bring up this argument? Haven't we gone over this enough already over the last 2/3 years? It good to know how they are going but does it have to turn into the smae argument every time?

 

[cthellis42]

Who here latches onto to these things as proof nintendo is doomed?

Well no one's writing term papers, but any time the quarterlies show some kind of unexpected lurch there's at least one dutiful person to post it with a giggle. (Or with extreme derision, but DMGA's mannerisms are well known at this point, I figure.) I don't think anyone here thinks any of the companies are INVINCIBLE either, and we can all recognize that they're each worth billions, and willing to USE said billions to stay in the game, and it would take years of much poorer performance than anyone has done this round to make one of them even start to think twice.

 

[cybamerc]

Qroach:

> Xbox losses are supposed to increase!

That's quite possibly the dumbest thing you've ever said.

> The fact loses are going up, is because they are selling MORE consoles
> at a loss. Cybermerc

You can spin all you like but the fact is that the business isn't good.

> it actually is a viable business

It clearly is not.

> you also forget that taking a loss on teh hardware is common practice.

Not after two years on the market.

> Xbox live didn't cost a billion dollars to create, setup or operate, get
> your facts straight.

It's a 5 year investment of which the bulk has likely already been spent. No money to be made on that for a long time.



DemoCoder:

> MS isn't worried about the losses.

Of course they aren't worried. When you have two ~10 billion dollar monopolies to fall back on a billion a year on Xbox isn't exactly a threat to the overall business.

That said, profitability is clearly starting to become a concern. Spending a billion per year only to get humiliated by Sony isn't going over well with the top brass.



Jabjabs:

> Did people really expect them to launch and make profits from day
> one? From the first year?

I did not expect them to make a profit after the first year. The business clearly wasn't designed to be viable and M$ made no effort to hide it. That said, I don't think it's unreasonable to expect profits after the first year, or even in the first year. Others have done it. M$ just happens to be in a position where it can sustain a failure of Xbox' proportions without having to worry about going bankrupt.

> Personally the xbox just shows what a sad state the industry is in now
> days that they have to spend SO much just to launch an excellent
> machine

You can't blame the industry for M$ being clueless.

> The question I have is why do people still bring up this argument?

Because it's relevant to this board and some people might find it interesting. Noone is being forced to comment on it.

 

[Qroach]

Cybermerc,

That's quite possibly the dumbest thing you've ever said.

Obviously this may be too much for you to grasp. Xbox losses are supposesed to increase, it's some MS has clearly expected to this point. they already know they are loosing money on each console sold, they already know that the costs of manufacturing are lowering. Let me put this in a way you can possibly understand. Xbox sold at a loss + increased Xbox sales = equals a bigger LOSS!

You can spin all you like but the fact is that the business isn't good.

You're obviously too biased to even mention xbox in a sentance. You realy should stay out of xbox threads altogether


> you also forget that taking a loss on teh hardware is common practice.

Not after two years on the market.

Wrong. In your eyes perhaps, but not in reality.

It's a 5 year investment of which the bulk has likely already been spent. No money to be made on that for a long time.

You don't know what you're talking about.

 

[cybamerc]

Qroach:

> Xbox losses are supposesed to increase

That is quite simply nonsense. While M$ budgetted significant losses for year one and two even before the Xbox had been released it doesn't change the fact that Xbox isn't good business. You can make all the excuses you want but the fact is that Xbox is a financial disaster.

> Xbox sold at a loss + increased Xbox sales = equals a bigger LOSS!

Yes, and if Xbox was a viable platform royalty based profits should be enough to offset the losses on hardware and marketing expenses. Not to mention that after two years they shouldn't be losing money on hardware at all.

> Wrong. In your eyes perhaps, but not in reality.

Name me a succesful console that was sold at a loss after two years on the market.

> You don't know what you're talking about.

I think I'll take M$' word over your delusional claims.

 

[Qroach]

Cybermerc,

While M$ budgetted significant losses for year one and two even before the Xbox had been released it doesn't change the fact that Xbox isn't good business. You can make all the excuses you want but the fact is that Xbox is a financial disaster.

Microsft budgeted for significant losses over the course of 5 years, with year 4 possibly breaking even. We're at year two right now! rght into XBox 2 for your information. You're simply ignoring what they have already told investors it's a long business plan. You're, blind. PLain and simple.

Yes, and if Xbox was a viable platform royalty based profits should be enough to offset the losses on hardware and marketing expenses. Not to mention that after two years they shouldn't be losing money on hardware at all.

Nonesense. How many times do you have to read that MS knew they weren't going to make money on this for years? Like I said before, you don't know what you are talking about.

Name me a succesful console that was sold at a loss after two years on the market.

Playstation 1 and Playstation 2. Super nintendo, Sega genesis etc... as I said before, it's common practice to sell the hardware at a loss.

I think I'll take M$' word over your delusional claims.

You're simply too much of a fanoboy to listen to any reasoning.

 

[bukima]

Cybermerc,

Name me a succesful console that was sold at a loss after two years on the market.

Playstation 1 and Playstation 2. Super nintendo, Sega genesis etc... as I said before, it's common practice to sell the hardware at a loss.

Have some proof of this? Because I am very sure that this is simply wrong. The two PlayStations started to break even, and make profits, much sooner than two years AFAIK.

The common practise is to sell your hardware at a loss for the first while - then break even, and then making a profit on each unit sold.