Microsoft's Xbox group enjoys second quarter of profit

It's taken a few years, but lightning's struck twice for Microsoft's Entertainment and Devices division (the portion of the company responsible for Zune, Windows Mobile, and Xbox). The operating profit of $89 million that E&D drew is just a drop in MSFT's far, far larger fiscal bucket, but unless business turns sour, from here on out it looks like the group making all the fun stuff in Redmond is no longer in the business of losing cash hand over fist.

[Via Xbox 360 Fanboy]

[steve @ Apr 26th 2008 3:16AM]

$89 million, that's a pretty decent profit. It'll still be a wile until they make up for earlier losses though.

[dagamer34 @ Apr 26th 2008 3:47AM]

All $4 billion of it.

[Evan @ Apr 26th 2008 9:45AM]

$89 million is pathetic compared to the BILLION dollars Nintendo makes in profit every quarter. That's right, Nintendo made $4.77 billion profit last year.

[Craig @ Apr 26th 2008 11:34AM]

While I'm willing to admit Nintendo has done an excellent job of creating a product which addresses a niche ignored by Sony and Microsoft, some of the numbers being thrown around here must be kept in perspective. And I'm not going to take the time to see what fiscal cycle each company is on.

First and specifically for Evan: The reports I found indicated Nintendo's announced financial results for the full fiscal year 2007showed total sales rose 73%, up to $16.1 billion. Profits are up 47.7 percent from last year, up to $2.5 billion.

That's 2.5 (not 4.77... so precise to be so off) billion company wide and that is revenue not profit. The big cash cow for Nintendo was clearly the DS, selling approximately 30.31 million units, Nintendo's Wii sold 18.61 million units over the past year. I could not find any results to determine how much of the 2.5 billion was profit. However, I find it hard to believe that a company with 2.5 billion in revenue could net the 4.77 billion you indicate. (You do understand the difference between revenue and profit, don't you?)

Microsoft reported revenue of 51 billion in the previous year. Yes, that's company wide, but so is your 2.5 billion for Nintendo. Like Nintendo is not a WII only company, Microsoft is not solely focused on being a gaming company. But, if you are going to compare revenue for a company to revenue for another company you must use similar fruits (apples to apples, oranges to oranges).

Microsoft's financial year appears to close out in June, but they are projecting a final revenue figure of $66.9 billion to $68.0 billion. That's enormous compared to Nintendo's 2.5 billion. And, in a previous balance sheet I could find, for the nine months ending March 31, 2008 Microsoft reported revenue from their game and entertainment division of 6.5 billion. That's revenue... not profit. So, that would indicate that in a preliminary and admittedly not complete fiscal year, Microsoft's Gaming and Entertainment Division will have revenue of over 6.5 billion, plus whatever the final quarter brings in. So, either way... Microsoft's 6.5 billion in revenue for games and entertainment division in just three quarters pales the 2.5 billion full year revenue figure reported by Nintendo. And that is just Games and Entertainment and only three of four quarters for Microsoft.

So, putting the my figure is bigger than your figure away... WII is a great product. Playstation and Xbox are both great products. I'm not going to take the additional time to look up Sony's numbers, but from a quick glance it looks like everyone is on the road to being profitable in their gaming venture. Hence, gamers like us can celebrate as it means we'll keep having great games to enjoy and great gaming systems.

[Craig @ Apr 26th 2008 11:43AM]

Well, you should always re-read your post, especially when you are long winded.

I just noticed the statement "Profits are up 47.7 percent from last year, up to $2.5 billion."

So it does appear that actual profit was 2.5 billion and not revenue. I sit corrected by myself on that one.

[SimbaDogg @ Apr 26th 2008 2:02PM]

@ craig
not only that, but u screwed up with your revenue. the 16.xx billlion in sales, IS the revenue. (price of unit)* (quantity sold)= revenue. sales=revenue, now (revenue)-(cost of goods sold)=economic profit.

[sjdurfey @ Apr 26th 2008 3:53PM]

@Craig, valiant effort though. hard logic is almost never used in forums, its a shame because trolls like Evan help propagate fallacies and bad rhetoric.

[finnith @ Apr 26th 2008 5:44PM]

Here are your marks Craig

Effort A+
Accounting F

[NONE @ Apr 26th 2008 9:20PM]

Nintendo has the better business model right now... it's not even close. Nintendo is the short-term winner. Their scope is much more narrow - they do games and gaming is their business.

Microsoft and Sony have submerged their gaming divisions with loss leader consoles as an "investment." Will Microsoft gain their desired market share and ultimately reap the rewards? Will Sony's gamble with Blu-Ray pay off?

I think the most interesting aspect of the whole scenario is how quickly Sony was able to drop from #1 to a distant 3rd in the console wars in a single generation (the original PS had the opposite effect).

What that means is that even if Microsoft's 360 eventually becomes a successful business endeavor, it *still* doesn't guarantee that they will be able to compete with their next generation console.

I suspect that in light of Nintendo's success, Sony and Microsoft may reevaluate the huge gamble they make when investing so heavily in a new gaming console.

[dagamer34 @ Apr 26th 2008 3:34AM]

And then they release a new Xbox and go into the red again.

[Chuck @ Apr 26th 2008 3:35AM]

Engadget refers to something coming from Microsoft as "fun" - Continues to offer backhanded compliments hand over fist.

Whew, for a second there Ryan went twilight zone on me. Glad to have you back.

[hnkelley @ Apr 26th 2008 3:37AM]

Yay for them! OK, I'm not M$' biggest fan (not even close), but I'm glad the gamers are turning a profit finally. I like my 360! I want them to stay in business and keep making great games for me.

Oh, and since they're making a profit (which is different than making up for earlier losses as pointed out above by Steve), maybe they can spen a little extra on keeping the consoles from overheating and/crashing, or better optical drives that don't destroy disks. Maybe they'd make an even better profit.

[wixostrix @ Apr 26th 2008 3:50PM]

and uptime on the xbox live!

[0megapart!cle @ Apr 26th 2008 3:56AM]

Optical drives don't destroy disks. The entire idea is beyond insane. Anyone who brings the idea up loses all credibility, FYI.

As far as Microsoft having to make up for prior losses, that is not how accounting works, AFAIK. All losses have been previously accounted for, and all future profits are just that, profits.

[nxtiak @ Apr 26th 2008 4:36AM]

The Xbox 360 Optical drive has crap inside it and if the system is knocked against or whatever, the disc inside hits this black thing in the drive and scratches the hell out of it.

[0megapart!cle @ Apr 26th 2008 4:52AM]

If any optical drive is disturbed while the disk is being spun, damage to the disk can result. This can, and will, happen with every optical drive ever manufactured. You do know how many RPM modern optical drives spin at?

[nxtiak @ Apr 26th 2008 7:40AM]

It happens more often on the 360. There's reports of this, and people taking apart their drives and showing video/pictures of the exact parts inside that scratches the disc.
And it's not just a little scratch, it's a huge up to 1cm wide circular scratch.

[z3r0D @ Apr 26th 2008 12:42PM]

nxtiak is right.

The xbox360 is/was lacking proper stabilizers for the disk to prevent damage from occuring to the disk when knocking it over.

http://en.wikipedia.org/wiki/Xbox_360_technical_problems#Scratched_discs

[0megapart!cle @ Apr 26th 2008 4:24PM]

I am sorry some of you haven't learned this yet, but just because you learned it on the internet, doesn't mean it is true. I am sure some people have convinced themselves that the Xbox 360 is responsible for their disc problem when it is in fact their nudging of the drive that is responsible, but that doesn't make it true. You are just making yourself appear more and more ridiculous by the day when you latch onto this theory.

[z3r0D @ Apr 26th 2008 9:15PM]

http://www.informationweek.com/news/windows/showArticle.jhtml;jsessionid=V1Z2KSAK15LOOQSNDLPCKHSCJUNN2JVN?articleID=202101826&_requestid=533630

Yes, we're really making things up because we saw it on the.... internets. Microsoft must be delusional too....

Do you deny the holocaust too? I mean, there's documentation of it on the Internets. How about darfur?

[0megapart!cle @ Apr 27th 2008 1:30AM]

Wow, did you even read your own link? The incident in question is about the packaging of Halo 3 Limited scratching the disk; the console had nothing to do with it. The article mentions the widely rumored scratching of disks by the console itself, but that has absolutely nothing to do with what the article is exactly about.

Wow, and Darfur and the Holocaust have something to do with this entire thing, how? (Other than you satisfying Godwin) You are making yourself appear more foolish by the second.

[z3r0D @ Apr 27th 2008 2:45AM]

FTA:

after numerous Xbox 360 users complained that the machines were leaving scratch marks on their game discs and rendering them unplayable.

http://www.pcworld.com/article/id,134587-c,cdrcdrwdrivesmedia/article.html
http://www.cdfreaks.com/news/Microsoft-admits-scratch-problem-with-Xbox-360.html

Youtube video of it happening: http://www.youtube.com/watch?v=bQN_pz1KfMo

I mentioned darfur because people, in the face of tons of evidence, ignore it or just deny it flat out.

How much more proof do you need? Do you really expect Microsoft to flat out admit their console scratches disks and automatically lose class action lawsuits? And not all drives scratch like this, in fact, pretty much none do. Have you ever had a portable CD player scratch your CD's? A computer you tilted over scratch your new DVD? No.

[0megapart!cle @ Apr 27th 2008 5:29AM]

First of all, again, you need to check your link before you post them. That Youtube video clearly shows the person shifting the console from vertical to horizontal, and back again, while the disk is spinning.

And again, from that article, it mentions the widespread belief that the 360 scratches disks in the same breath as Microsoft admitting that the Halo packaging was defective, and tries to link the two. It fails miserably.

The PCWorld article is just talking about the suit.

As far as the Kassa piece, that is the most irrefutable piece of evidence so far. I suspect that the producers of that piece either didn't notice the single scratch when they took the disk out of the packaging, or they lied on camera to make it look like they had a story. Not much of a story if there wasn't at least some kind of damage. Yes, Microsoft representative admitted that some damage might come with frequent use, but that in no way is them just giving into the lawsuits. Microsoft isn't beholden to the equivocal statements of a single spokesman.

Sufficely to say, I still think common sense, in the fact that the xbox has a common DVD drive which is used in many different devices with no reports of defects, points to the Xbox not scratching disks when the console isn't moved. One overzealous TV crew does not change what logic dictates.

[happy_penguin @ Apr 26th 2008 4:04AM]

I don't claim to know how all this stuff works but really, who the hell cares if Microsoft "loses" money on the XBox division? Microsoft is making so much goddamned money overall that they aren't going to hurt. It's like saying that Apple is suffering for coming out with the Macbook Air. (or is it because I don't know if Apple is losing on that one)

They can handle a "losing" venture because no matter what, they're making money, and that's good. But if they're now "making money" on XBox, then I suppose that's all the better.

There's a lot of unforeseen benefits from so called "losing" ventures. They're not stupid. They saw the benefit even if they were previously "losing" money on it.

[tekdroid @ Apr 26th 2008 4:30AM]

Plus that Red Ring Of Death was soothing, calming.

[Ben Hobbs @ Apr 26th 2008 5:04AM]

Its incorrect to say that they have a long way to go to recoup their losses.

All the money spent initially on launching these products and services, isn't money just thrown down the drain. Most of it is research and development costs, the benefit of said research goes into the whole of Microsoft as a company, as does the brand building.

$4 billion isn't that much in the scheme of these things when you consider something like myspace or facebook are often values at more than triple that, I believe that the work Microsoft has put into building a home entertainment brand, live services and such is much more viable for long term profits than a website that will be long forgotten in 10 years or so.

[roflercopterer @ Apr 26th 2008 5:24AM]

lioncash > xbux

[happy_penguin @ Apr 26th 2008 5:54AM]

Oh, and that's a damn cool pic you posted there, Ryan. :D

I'm diggin it!

[Homeboy @ Apr 26th 2008 6:54AM]

This is the world of business folks. When you enter a market which is heavily dominated by two companies it will take quite some years of hard work and losses gaining market share. MS are lucky to be so wealthy that they can afford losses in the short run.

[Esat Dedezade @ Apr 26th 2008 8:34AM]

Well said Sir. Well said.

[EdZ @ Apr 26th 2008 9:36AM]

∀profit?

[brett @ Apr 26th 2008 10:35AM]

i see what you did there...

[The Dude @ Apr 26th 2008 3:51PM]

I don't. :(

[stuxstu @ Apr 26th 2008 10:04AM]

Not every product a company makes is intended to make money... It is common to spend a lot of money to get into a market. If you think about, MS is being very intelligent. They have entered and done well in the entertainment (gaming world).

MS is great at thinking beyond the margins.....

Stu

[ed @ Apr 26th 2008 11:04AM]

And they still can't keep Xbox live up? Come on now!

[PG @ Apr 26th 2008 11:24AM]

$89 million for all of Microsoft's E&D division. That doesn't mean the Xbox group made all of that profit, but it's likely it is, and that also means the xbox group made much more in revenue but other groups within the E&D division were spending those profits.

[PeregrineT @ Apr 26th 2008 11:37AM]

I think people are going a little overboard here. First, its 89 million. Thats a drop in the bucket. Compared to what Microsoft lost on the Xbox(it wasnt millions), and what they so far are in the hole for for the 360, thats not going to help a whole lot. Will the 360 end up turning a profit for Microsoft by the time the next console cycle comes? Im not sure. But they will have to do a lot better than this. Yes, its good to see a profit, but lets not go overboard because we love our 360's. Last quarter the E&D division had 5 times the profit of this quarter. Lets also remember that this is 89 million in profit for the WHOLE E&D division. Thats not just the 360. That means music players(big market), and mobile devices as well.

High end console making is not a very profitable business right now. Thats why console games are ridiculously overpriced, to make up for hardware losses.

[deanfromlife @ Apr 26th 2008 2:24PM]

Ok, since this is profit, this means that they sold MORE than their loses. That is how profit works. That means that they are selling more products than it costs to fix consoles.

[SimbaDogg @ Apr 26th 2008 7:14PM]

@deanfromlife
seriously....some of you guys need to go back to school, just like a previous poster said above A+ for effort F for accounting. You dont sell more than you're losses, you have total revenue less total costs. that'll give you your profit

[GearsofWar @ Apr 28th 2008 5:27PM]

" That means that they are selling more products than it costs to fix consoles."

No. They took a $1.15 BILLION charge 2 quarters ago to "fix consoles". They did it all in one quarter to bury how much they are really losing each quarter to fix consoles.

A $1.15 BILLION charge 2 quarters ago, just to claim the next 2 quarters as profitable, and try to convince guys like you that the Xbox was somehow over the whole fix console issue and the division was healthy.

[BigTeebo @ Apr 26th 2008 1:37PM]

You need money to make money. Think of the distribution costs for Xbox live games. Just the servers to upload them to consoles for an item that's a bunch of ones and zeroes. You can sell infinite copies.

I thought it was understood that for video game console business ventures, you'll be taking a hit in the beginning. Microsoft can take that hit.

[Sir Sargasm @ Apr 26th 2008 2:12PM]

Funny thing about profits.... It's real easy to turn a profit by charging for something and having nothing to return to people. (READ: XBox Live Down Again) I mean, profits before, after, and during the holiday season quarters? Coincidence? Come on. Now the real question is, how much of a loss will they take when they can go a straight Q without ANY inconvenience whatsoever?

[Sir Sargasm @ Apr 26th 2008 2:13PM]

....Ok and in all fairness, having some kick ass games to drive console sales doesn't hurt either. (Read: HALO, GTA, GOW ..etc...)

[Jubei @ Apr 26th 2008 6:21PM]

Perhaps the division has been profitable with the inclusion of the Zune within the division. Without the Zune, sustainable profitability would probably not have been possible. Zune must be selling in tens of millions every quarter. Zune must be hot, must have product with consumers.

[MAVric @ Apr 26th 2008 10:20PM]

ok, this is getting a little annoying, the term $89 million is just a drop in the bucket after how much they spent to make the console... GUYS, buy saying they are turning a profit they mean they have made up ALL the losses they took getting the system to market, and now they are enjoying pure, golden profit... second, all these complaints about live crashing, being a network professional myself, i know when a network gets as big as live, one small glitch can propagate across the network in minutes and cause the whole house of cards to come tumbling down... then you have to troubleshoot for 30+ minutes to find the problem and another 30 to fix it, and thats if your the best...ya its inconvenient, but think about the guy who has to fix the conflagration, he aint laughin either...

[Ian @ Apr 27th 2008 1:16AM]

The division that includes the 360 also includes eHome and the Media Center team. For each copy of Vista with MC sold $N goes to eHome. I'm more likely to think E&Ds newfound cash is more from that than from the 360.

[Ernie Oporto @ Apr 27th 2008 3:21PM]

With all this profit, there is a lot of room ni the market for other players, like say... Sega with Dreamcast II.

[sned18 @ Apr 28th 2008 7:01AM]

I think Mac should make a console so the true rivalries found on these forums can be displayed in their full glory.