Microsoft Reports Fourth Quarter and Full Year Income - Consoles Still Losing Cash

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Microsoft revealed its financials for the fourth quarter and fiscal year ended June 30, 2006. For the fourth quarter, Microsoft reported net income of $2.828 billion compared to net income of $3.700 billion in the same quarter the previous year. For the full year, Microsoft reported net income of $12.599 billion compared to net income of $12.254 billion the prior year.

The Home and Entertainment division, that includes Microsoft's gaming operations, reported revenues of $1.138 billion and an operating loss of $414 million for the latest quarter. That compares to revenues of $587 million and an operating loss of $201 million in the same quarter the prior year. For the fiscal year, Home and Entertainment reported revenues of $4.256 billion and an operating loss of $1.262 billion, compared to revenues of $3.140 billion and an operating loss of $485 million in the prior year.

As above numbers indicate, for both the quarter and the fiscal year Microsoft's Home and Entertainment division took in more money, but incurred a larger loss. Microsoft attributes $742 million in costs to Xbox 360 console sales for the fourth quarter that ramps up to $1.62 billion of such costs for the full fiscal year. The increase in Home and Entertainment revenues was primarily due to Xbox sales, including the shipment of 1.8 million Xbox 360 consoles.

Microsoft also confirmed that sales of the first generation of Xbox consoles still has negative margins (it costs Microsoft more to get the console to the consumer than it receives from each sale). That does reduce the likelihood that Microsoft will be eager to cut the cost of the original Xbox further. Another increased cost comes from the 19% increase in headcount for staff in the Home and Entertainment division.

In summary, Microsoft is still losing considerable cash on the gaming market, but there is no reason to expect them to exit anytime soon, as Microsoft continues to gain ground on Sony over this console transition – as much due to Microsoft's cunning as it is due to Sony's arguable missteps.

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This page contains a single entry by Editor published on July 20, 2006 2:57 PM.

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