According to Microsoft's second quarter results for the period ending December 31st 2006, the company's Xbox-encompassing Entertainment and Devices division posted a $289 million loss, despite an overall $2.63 billion profit for the entire company during the period.
The $289 million divisional loss for the quarter remains more or less identical to the $286 million loss the year prior. Microsoft posted a $1 billion increase in revenue in E&D during the quarter, and a $1.3 billion increase for the first half, as well as a 76 and 82 percent revenue jump respectively for its Xbox and PC game software divisions.
However, the company said, development and marketing expenses related not just to the Xbox 360 hardware, but also the launch of its portable media player Zune (also part of the E&D division) offset those revenues, bringing losses to a similar level to last year's. The E&D division includes the Xbox 360 hardware and software, PC games, the Zune digital music and entertainment device, TV platform products for the interactive television industry, and mobile and embedded devices.
In particular, the extension of the Xbox 360 console warranty from 90 days to one year in the U.S. and Canada, as well as general repair expenses also cut into the division's profitability, according to statements released alongside the company's financials.
Microsoft also said it has moved 4.4 million Xbox 360 consoles during the quarter ending December 31st 2006, bringing the first half of fiscal 2007 total to 5.4 million consoles sold. Since the console's launch in November of 2005, the company indicated that it has sold a total of 10.4 million. Software sales, as previously reported, were driven in the quarter primarily by Gears of War.
Looking forward, Microsoft is hopeful that its console innovation, portfolio of video game content for the console, online offerings, and the market share of the console gives the company a "strategic advantage for the long-term success of Xbox 360."
Overall, the company's $2.63 billion profit was down 28% from a $3.65 billion figure last year, partly thanks to the delay of business and consumer elements of Windows Vista, but was still well-received by analysts, since it beat their estimates for the quarter. Shares were up 57 cents to $31.02 in after-market trading.
[UPDATE: Talking immediately following the earnings, Microsoft CFO Chris Liddell has cut the company's estimates for Xbox 360 hardware from 13-15 million to 12 million for the fiscal year ending June 30th, 2007. The company had shipped 10.4 million Xbox 360s to stores by the end of 2006.
According to remarks made to news agency Reuters, Liddell commented of the Xbox 360 targets: "We are just being cautious about the second half. It was always going to be a slow half. We've done very well in the first half. There is a reasonable amount of inventory in the channel."]