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Microsoft Increases Xbox Shipment Target, Shows Increased Overall Profit, Bigger Xbox 360 Loss

Microsoft Increases Xbox Shipment Target, Shows Increased Overall Profit, Bigger Xbox 360 Loss

April 27, 2006 | By Simon Carless

April 27, 2006 | By Simon Carless
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More: Console/PC



Tech giant Microsoft has announced its third-quarter financial results for the period ending March 31, 2006, showing revenue of $10.90 billion, a 13% increase over the same quarter of the prior year. Profit for the quarter was $3.89 billion, or a 17% increase compared with $3.33 billion in the prior-year period.

However, particularly relevant to the video game press were comments made in the conference call following the results, during which officials revealed plans for five to five and a half million Xbox 360s to ship to stores worldwide before June 30th, the end of the company's fiscal year. This was up marginally on the previous 4.5-5.5 million estimate.

The company also revealed that it had shipped 3.2 million Xbox 360s thus far, including 1.8 million in North America, according to a TheStreet.com report, after repeated shortages due to manufacturing problems stymied many consumers over the holiday period and early 2006. However, Microsoft VP Peter Moore commented in a post-results call: "Our supply challenges are behind us operationally". The company also announced 10 million Xbox Live Marketplace downloads, including over 4 million Xbox Live Arcade games - though many of these were not paid, obviously.

As for specifics on the Xbox 360 and Xbox's financials, the company's Home and Entertainment division, which includes the Microsoft Xbox video game console system, PC games, the Home Products Division, and TV platform products for the interactive television industry, lost $388 million for the quarter on $1.06 billion in revenue, a sharp increase from the $175 million loss the previous year.

The company's financial report explained of the increased revenue: "Home and Entertainment revenue increased for the first nine months of fiscal year 2006 driven by the launch of Xbox 360 and the strength of new PC games, especially Age of Empires III. Revenue from the 3.25 million Xbox 360 consoles shipped since its launch more than offset the approximate $300 million impact of Halo 2 sales in fiscal year 2005."

However, the division's loss increased "...due to an increase in product costs and sales and marketing expenses related to the Xbox 360 and due to the significant margin generated by Halo2 in fiscal year 2005." The document explained: "Our business model anticipates that while we currently sell Xbox 360 consoles at a negative margin, product cost reductions and the future margins on sales of games and other products will enable us to achieve a positive margin over the Xbox 360 console lifecycle." However, it noted that "...the first generation Xbox consoles continue to have negative margins." Microsoft's financials on the Home and Entertainment division ended: "We expect operating expenses and operating loss to increase as a result of Xbox 360 launch-related activities and Xbox 360 console costs."

In a related story, in an interview with the Associated Press, Microsoft CFO Chris Liddell noted that the company had higher-than-expected expenses for Xbox 360, because of the costs of rushing to get consoles into consumers' hands amid a shortage, and also that revenues were down from expectations because of the swift tailing off of revenues from the first Xbox.

Finally, the company announced overall projected revenue of between $11.5 billion and $11.7 billion for its fiscal fourth quarter, a figure that Wall Street considered 'tepid', despite its magnitude. The company's shares were down almost 2 dollars to $25.48 in after-hours trading.


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