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Microsoft Reports Increased Earnings, 'Gradual' Xbox 360 Launch

Microsoft Reports Increased Earnings, 'Gradual' Xbox 360 Launch

October 27, 2005 | By Simon Carless

October 27, 2005 | By Simon Carless
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More: Console/PC

Tech giant and Xbox parent company Microsoft Corp. has announced its financial results, revealing revenue of $9.74 billion for the quarter ended Sept. 30, 2005, a 6% increase over revenue of $9.19 billion for the same period in the previous year. The company's profit grew to $3.14 billion this quarter, compared to $2.53 billion in the previous year, up an impressive 24%.

The company's full financial results revealed broken-out statistics for Microsoft's Home and Entertainment division, which includes the Xbox division, and which saw a slightly increased loss of $141 million on revenues of $525 million, compared to a $138 million loss on revenues of $634 million in the same fiscal quarter last year. Particularly interesting was the note that: "In the first quarter of fiscal year 2006, Xbox revenues declined $132 million or 34% due to lower console volumes and lower games revenue driven by fewer software title releases. Revenue from consumer hardware and software, PC games and TV platforms increased $23 million or 9% due to the strength of new PC games software sales."

However, Microsoft is bullish about the imminent launch of the Xbox 360, explaining: "We... believe our launch timing, expected to be in advance of competitive consoles, will provide a strategic advantage for the Xbox 360." Nonetheless, it concedes: "At the same time, with the announcement of our next generation console, the current generation Xbox revenues have declined and are expected to continue to decline."

Going forward, Microsoft's comments in its filings were honest regarding more losses to come, as it commented that: "Historically, Xbox consoles have negative gross margins", and explained: "In fiscal year 2006, we expect Xbox console unit volumes and revenue to increase from fiscal year 2005 due to the launch of the Xbox 360... We expect operating expenses and operating loss to continue to increase as we near the launch of Xbox 360 as a result of launch-related activities and higher initial Xbox 360 console costs."

Chris Liddell, CFO at Microsoft, commented of the overall results: "We've had a good start to an important year for the company... customer excitement is high for our next wave of product innovations kicking off next month with the launches of Xbox 360, SQL Server 2005 and Visual Studio 2005."

Liddell also spoke to news agency Reuters on the rate of the Xbox 360's roll-out. While not giving precise details, he commented: "The analysts were expecting more of a launch spike than we were," saying that he expected a "more gradual ramp toward" meeting revenue targets, presumably due to a lower volume of available Xbox 360 consoles than some analysts were previously estimating, and perhaps indicating there may be more severe Xbox 360 shortages than some have predicted this holiday season.

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