Microsoft reports Q3 losses on Xbox 360 division

Microsoft revealed a Q3 loss of USD 388 million in its Home and Entertainment division, which houses the Xbox 360 console, despite a gain in revenue and an overall profit for the company.

Revenue for the division, which also incorporates PC games, the Home Products Division, and TV platform products for the interactive television industry, was posted at USD 1.06 billion, but the loss was a significant increase on the USD 175 million lost in the same quarter a year prior.

A significant percentage of the loss was clearly related to the Xbox 360 console, which has suffered from continued supply shortages since its launch last November, although Microsoft VP Peter Moore stated in a conference call following the results that "Our supply challenges are behind us operationally," declaring that the company has shipped 3.2 million consoles to date and expects to shift five to five and a half units by June - a marginal increase on previous targets of 4.5-5 million.

The company has admitted that first generation consoles are sold at a loss, stating: "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, the supply shortages and the resultant increase in expenditure as Microsoft made efforts to push units into retails stores worldwide has obviously had a negative impact on the results.

And the problems are not over yet, as the company states "We expect operating expenses and operating loss to increase as a result of Xbox 360 launch-related activities and Xbox 360 console costs."

Overall revenue for the company was noticeably more positive, with revenues up 13 per cent on the same quarter in 2005, at USD 10.9 billion, and overall profit showing an increase of 17 per cent at USD 3.89 billion for the quarter. The continued Home and Entertainment division expenditure has prompted the company to lower offer a reserved fourth quarter guidance of USD 11.5-11.7 billion, dipping below analysts projections and resulting in a slight drop in share price following the announcement.