RSSHuge Xbox 360 Sales Boost Microsoft Revenue
By Scott M. Fulton, III | Published January 25, 2007, 9:37 PM
When Reuters sounded alarm bells that Microsoft net income may have fallen by as much as 28% (if it had done the math correctly, it should have come up with 25.5%), it was a bit premature: Microsoft chose to defer about $1.64 billion of revenue from sales of Windows Vista during the last quarter, which came in the form of coupons that customers will redeem this quarter.
As a result, a company whose operating income gains would probably come in at about 10%, in line with estimates, ended up looking like one whose income had plunged in the wake of last year’s Vista delay. Microsoft stock traded generally lower on the day, experiencing a hump followed by a lull in late trading after earnings numbers were reported, ending the day down over 2% in value on the NASDAQ.
While Microsoft posted a $12.5 billion quarter, most likely its best ever, from a profit perspective, the cost of doing business – while still steep – may be coming under control. Operating income for the entire company fell just over 25%, taking the deferral into account. But even though total revenue gained for the quarter by an annual rate of 5.95%, income for the company’s core business divisions (excluding overall cost of business) rose by a combined rate of about 11%.
The divisional breakdown shows only modest seasonal gains in Microsoft’s Business Division, with $3.5 billion in revenue in the year-end quarter versus $3.4 billion in the previous quarter, a gain of just 2.5% from the prior quarter, and an actual decline of 4.8% over the year-ago quarter. Revenue from the Client division, which accounts for Windows, would have been up 9% for the quarter had it not been for the deferral; as written, revenue for that segment is actually down 25% over the prior quarter.
The effect of Vista on XP is difficult to gauge here, though you can do it with a little effort: Customers who purchased new systems with Vista coupons are also Vista customers, although the Vista portion of their contributions to the company’s bottom line won’t be monetized until April. A 9% gain for the fourth calendar quarter is right in line with “seasonality” – the fact that sales naturally rise toward the end of the year. So just as hardware vendors have timidly predicted in recent weeks, Vista may end up being a wash.
This assessment could be verified by Chief Financial Officer Chris Liddell’s statement to an analyst that the situation for Vista, well, could have been better, could have been worse. “[In] the Quarter 2 results,” Liddell said, “we’re certainly heartened by the fact that the tech guarantee [the Vista coupon] appeared to avoid any stalling of sales in that quarter.”
The star of the day was the Entertainment and Devices division. Unaffected by the Vista coupon purchase deferral, its revenue over the holiday season went through the roof: just under $3 billion, a gain of 187% over the prior quarter (that is not a typo), and a gain of nearly 76% over the 2005 holiday season. But Entertainment and Devices posted an operating income loss of $289 million. With the development money on Xbox 360 already having been spent, you’d think that cost would have been attributed to Zune.
But the word “Zune” was heard from the lips of Microsoft officials only once, from Investor Relations General Manager Colleen Healy: “During the quarter, we launched the Zune digital media player in the United States, which furthers our strategy of connected entertainment.” The latter part trailed off like a footnote, or like a booth announcer for a drug commercial reminding viewers of the risks one takes when mixing it with alcohol.
The Vista deferral accounts for a good portion of Microsoft’s overall income decline, yet that amount will inevitably be taken into consideration when Microsoft posts a huge increase in Client division income next quarter. Chris Liddell advised that during his company’s fiscal third quarter, ending in March, operating income for the Client division will most likely be posted with an annual gain of an astonishing 54 – 56%. About 38 points of that gain will be due to the deferral.
Next: Reduced sales projections for Xbox 360 in Q3
The problem is mostly is supply and demand. 360 has been out for more than a year so they can relase million of consoles at once seems to be different for PS3 and Nintendo. Heck im still not able to find any Nintendo's in Canada or on the net. except threw those crooks on ebay but will never get that desperate.
Score: 0
|idk if anyone has noticed it. but i thought, what the hell, and i have been kinda keeping mental track of the 360, ps3, and wii sales lately. and there must be a surge of 360 sales lately. as of this minute its sales are outpacing even the wii. i know ur gonna say that every single wii that hits the shelves is sold(which is true, and im gettin one as soon as i find one) but that makes a statement. when every single wii in existence is being sold and the 360 is still selling more? wow!! definitally top contenders here. ps3 better make a recovery strategy fast cause every second that goes by the light at the end of the tunnle is getting farther away.
Score: 0
|This doesnt make me happy being a Sony, PS3 and Blu-Ray fanboy.
As I dont have the money for a PS3, 360, HD-DVD or Blu-Ray player, I'll keep sticking my nose in the forums with my opinions even though I dont actually support a single product I am always yapping about.
Hi plague.
Score: 0
|Herror, I got my guess at who Shadow Davey is, tee hee.
Score: 0
|God, that was pretty funny.
Score: 0
|Dave my fellow believer, don't worry about it too much. I'm sure the PS3 will catchup up soon. Until it does you can come to my place and play on the 360. I've started collecting aluminum cans and like I offered you a while back you can still join me and together we should be able to save enough cash for a PS3 joypad... with a bit of a modification I heard you can get it working on the 360...can't use a wireless one though. I've got some black paint too and I figure if we paint it, stick a PS before 360 and remove the 60 we've got ourselves a pretty good substitute. Blu-ray movies should be ok, a blue diode is a blue diode so we'll get the HD-DVD external drive and wish for the best. Times are tough my old friend.
btw thanks for trying to take the blame for the You-tube Fox incident, you are a true friend.
Score: 0
|ahahahahahaha. i had myself a good laugh. thanks shadow mark.
Score: 0
|LMAO this is by far the best Shadow Marky post EVER!! It even beats Marky already doing his time for child porn/ or molestation, I cant remember.
Score: 0
|Personally, both BlueRay and HDDVD will have a short life... Why? Simple! People will be downloading their movies via any digital connection and watching them at their convenience.
"Zero Media" is the future!
Score: 0
|Don't know if I really agree with this article.
"and a gain of nearly 76% over the 2005 holiday season."
In the previous holiday season, the xbox 360 was even more limited than the rack warming PS3's. It's not a good referance.
Score: 0
|You know the article is hyperbole when you see amateurish stuff like "(this is not a typo)".
Score: 0
|So, the Xbox, a product put out by a division which has only posted a profit for one year--2004--has suddenly propelled Microsoft to one of the best quarters any company has ever had?
Why do I detect a smidgen of bias here?
Score: 0
|http://www.gamespot.com/news/6164755.html
"For the quarter, the Entertainment and Devices division posted an operating loss of $289 million, slightly greater than the $286 million loss it sustained over 2005's holiday quarter. Microsoft has previously said it expects to post a profit with the division in its 2008 fiscal year, which starts in July of 2007. Overall, Microsoft's profits were down more than 25 percent for the quarter, slumping to $3.47 billion from $4.66 billion in the same quarter the previous year."
As Ace Ventura once said, "Man, I'm tired of being right!"
Score: 0
|There's no bias, Desides, other than what the calculator tells me. The cost of doing business is still huge. But that 25% reduction in profit comes entirely - and I do mean "entirely" - from a deferral of income to the next quarter.
It's an earnings statement, not a position paper.
SF3
Score: 0
|Lately I've been starting to feel kind of bad for SMFulton3 and a few other writers on BetaNews. All their articles relating to Sony or Microsoft are viciously bashed by the fanboys on here. SMFulton3 writes decent articles and I don't usually see much bias, if any.
Whenever there's a positive article about Microsoft, all the MS haters and Sony fanboys cite bias. If the the article reflects negatively on Microsoft, then all the MS fanboys cry foul and MS haters + Sony fanboys applaud it. When the article is about Sony, if it's negative, then the Sony fanboys cry foul and Sony haters applaud it. If it's positive, then the Sony fanboys applaud it and the anti-Sony squad cite bias. You get the idea.
Most of these articles aren't trying to convey an opinion, they're simply reporting what's going on out there. You know what, I forget where I was going with all this, so I'll just click the Post button now.
Score: 0
|"Expect Huge Xbox 360 Sales to Boost Microsoft Q2 Earnings"
No.
Score: 0
|YES!
Latz,
Score: 0
|