Microsoft reports strong Q4 results; Xbox growth lags other divisions

Software giant Microsoft has announced strong results for the fourth quarter and full year ended June 30th, but the growth of the company's Xbox business continues to lag behind other divisions despite increasing console shipments.

The Home and Entertainment Division, which houses the Xbox project, recorded a $339 million operating loss in the June quarter, on revenues of $499 million - representing revenue growth of only three per cent, the lowest of any of the seven business units which Microsoft divides its operations into.

These figures come despite a strengthening market position for the console, which saw a 27 per cent increase in sales over the same quarter last year, bringing its total global installed base at the end of June to 15.5 million units - 10.1 million in North America, 3.9 million in Europe and 1.5 million in Asia Pacific.

Software sales in the quarter also grew significantly, rising 50 per cent year on year, and Microsoft drew attention in its analyst conference call to figures from the NPD market research firm which indicate that Xbox has around 33 per cent market share in the USA.

The apparent disparity between the slow growth of the Xbox division's revenue and the rapid climb in actual sales results from the fact that this growth has largely been driven by an aggressive hardware price-cut which Microsoft implemented in North America earlier this year.

Xbox is certainly gaining ground on its competitors, then - although its global market share in terms of overall installed base is still only around 15 per cent - but the Xbox project remains an investment for Microsoft rather than a profit centre, and it seems unlikely now that the console project will ever move into the black overall.

However, spending billions of dollars on gaining a foothold in the global games market is probably an investment that's well-regarded by many within Microsoft, who will be looking to the company's next-generation platform - due for launch in 2005 - to start to reverse the flow of money out of the Home and Entertainment Division.

And there's no doubt that the company has the money to spend; aside from its huge cash reserves, which have often been criticised by analysts, the company's key business software and operating system divisions continue to be hugely profitable.

Quarter four results for the company as a whole saw 15 per cent year on year revenue growth, bringing revenues to $9.3 billion, and operating income of $3.1 billion, significantly ahead of analyst expectations; while for the full year, net income of $8.17 billion was recorded on revenues of $36.84 billion.