Microsoft managed a trick that is rarely pulled off by a company that survives intact, and that was to run a business that has bigger losses than its revenues. For the past quarter Microsoft’s Entertainment and Devices Division showed a reduction in revenues and a loss of $1.2 billion on revenues of $1.16 billion. This time last year Microsoft’s EDD has revenues of $1.28 billion and lost only (ONLY) $423 million.
At first glance after taking into account the non-cash $1 billion write down associated with fixing what may turn out to be as many as half of all the Xboxes that Microsoft has shipped, it looks as if Microsoft WOULD HAVE been profitable in this division if the warranty provision had not been made a few weeks back, but after you unravel tax issues it turns out that Xbox was every bit as unprofitable this year as it was last.
EDD products include Xbox, PC games, consumer software, the Zune, and its IPTV TV platform products now renamed Mediaroom, as well as mobile and embedded devices.
If you break out the numbers for this division for the entire year it shows as below, with revenues up 28% to $6 billion for the year, and a loss of $1.9 billion compared to a loss this time last year of $1.3 billion.
Microsoft Entertainment and Devices Division latest Quarter
2007 2006
$1,159 $1,281 -10%
$ (1,199) $(423) -183%
Microsoft Entertainment and Devices Division full year
2007 2006
$6,083 $4,756 28%
$(1,892) $(1,284) -47%
Microsoft said that EDD revenue actually went down for the quarter because less Xboxes are being sold this year compared to last year, at just 700,000 devices and that this is being partially offset by Zune and Xbox accessories and game sales.
Last year Microsoft shipped 1.8 million Xbox 360 consoles in the fourth quarter giving us some idea of how slow the device has been since the two rivals Nintendo and Sony launched their consoles.
Zune is loaded in with IPTV and between them these racked up sales of $113 million up 56%, but given the amount spent on Zune marketing and its launch, that clouds the issue considerably, and Zune is widely understood to have been a dud.
Over the entire year Microsoft shipped 6.6 million Xbox 360 consoles compared to 5.0 million the year before, and at the current rate it is going to have trouble getting past 3 million for the coming year, which means it will at least be overtaken by the Nintendo Wii device in numbers inside a year, and by the PS3 in revenue.
The rest of Microsoft did spectacularly well with quarterly revenues of $13.37 billion and annual revenues of over $51 billion largely on the back of the Vista operating system launch and a renewed Office product line and says it is expecting to do over $56 billion in the coming year. Net income rose slightly for the quarter to $3 billion, but was better over the entire year at $14 billion.
Microsoft management will continue to be allowed by investors, to attack neighboring markets with loss leaders, while it can still deliver this type of cash and profit increase, but it remains illogical to us to waste so much money trying to attack an entrenched entertainment industry.