Reposting from the MS can either make $$$ or outsell PS3, NOT BOTH. thread.

It seems that alot of people are prepared to use the EDD profit/loss figures as a surrogate for actual XBOX profitability. Doing so is increadibly missleading. If you look at the latest 10Q filing from Microsoft you can actually get somer sense of the actual XBOX business, this is because they give you deltas as both dollar value and percentage offset.

Nine months ended March 31, 2009 compared with nine months ended March 31, 2008

EDD revenue decreased primarily due to decreased Xbox 360 platform and PC game revenue and included an unfavorable impact from foreign currency exchange rates of $47 million or one percentage point. Xbox 360 platform and PC game revenue decreased $51 million or 1%, primarily as a result of decreased revenue per Xbox 360 console as a result of price reductions during the past 12 months. We shipped 10 million Xbox 360 consoles during the first nine months of fiscal year 2009 compared with 7.5 million Xbox 360 consoles during the first nine months of fiscal year 2008.

EDD operating income decreased primarily due to increased research and development expenses, partially offset by decreased cost of revenue. Research and development expenses increased $317 million or 30%, primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform, driven by recent acquisitions. Cost of revenue decreased $60 million or 2%, primarily driven by decreased Xbox 360 platform costs.

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The bolded sections are the important ones. Gaming related revenue decreased $51 Million, or 1%. If $50million is one percent then 100 percent is 5Billion. This gives us gaming revenue. Cost of revenue decreased 2% or $60million which gives ua a total cost of revenue for the EDD of $3 billion. A 30% increase in R&D at 317million gives you about $1 Billion before, $1.3Billion after.

So, we have $5 Billion in revenue (gaming alone) with a cost of revenue of $3 Billion and R&D exenses of $1.3 Billion (both for the entire devision) it is very hard to come to the conclusion that the XBOX is losing money.

There is obviosly $2 Billion in expenses missing, $6.5 Billion in revenue, minus $300 Million in profit, minus $4.3 Billion combined cost of revenue plus R&D leaves $2 Billion. There is obviously Administrative costs as well as cost associated with the recent aquisitions that drove up Windows Mobile R&D expeses. Truth be told we can't tell from this report. Perhaps it's $2 Billion dollars worth of money hatting.

To reiterate my point, there is $2 Billion more revenue from gaming then there is cost of revenue for the entire EDD.

Entertainment and Devices Division

27 posts and one of the most intelligent threads made in a long while, kudos... doing a lot better then some of the trolls here...

OT: good analysis, the 360 is built to be a cashcow and anyone seeing how things you buy for it can pile up can see. Wifi - 100, 120 GB HDD - 150, monthly fees for online that is only P2P which means it's cheap to run. If people really think 360 is losing money they've got no common sense.

Things like Zune not doing too hot and other products are the reason for that branch not doing well, but if they haven't axed gaming there MUST be some reason...

Thanks for posting this, its great to have another perspective other than "The Xbox 360 is losing money because E+D is doing badly".

If there isn't decisive proof of the quantity of money the Xbox 360 is profiting Microsoft, there is pretty much decisive proof that they are infact making money and have been making money for a while.

So going forwards it means two important things.

1. Microsofts presence in the market is justified by the fact that the ARE making money on the Xbox 360.

2. Microsoft has the means to cut the price of the Xbox 360 by quite a reasonable margin if they feel they need to. To meet the goals of A. Outselling the PS3 and holding 2nd place. B. Respond to any and all likely price cuts by the PS3. C. Attempt to increase market share relative to the Wii by pricing the Xbox 360 relatively cheaper if they so chose.

Theres another thing to consider, if the new Xbox was being developed now then it would show up with increased R+D spending.

Thanks for reposting this! Its great.

I think they cut the price of WiFi to $80, I saw it that price on amazon. But yeah, the $150 HDD is pretty expensive for the component costs but it probably works due to the fact that the HDD is simply so easy to replace. No tools, no online guide etc.

 I suspect they price the console low to add value in the online for the simple reason that it gets tons of people using it, and the value in online is the fact that you can play with your friends. Getting tons of people using it, which likely includes a lot of your gamer friends and its worth the price of admission. Smart value vs content play by Microsoft.

Damn!! a thread that actually has good common sense in it...kudos, your a welcome addition to vgchartz :)

Excellent. Hope some can people can comprehend this to see why Microsoft is already treating the Xbox division as a very significant part of its business.

"To reiterate my point, there is $2 Billion more revenue from gaming then there is cost of revenue for the entire EDD."

Why did MS only list 299 million in operating income for the nine month period? You can't leave 2 billion dollars in revenue unaccounted for in any analysis. The EDD lost 31 million last quarter. If it was such a "cash cow" it wouldn't have lost money.

Its great to see how cost of revenue decrease = revenue decrease due to lower console pricing. It means essentially that the financial position now compared to last year is pretty much unchanged and the increased software sales and lower cost have essentially cancelled each other out.

Nice post!

Nice thread.  Good to see someone actually take a look at the content of a financial report.  Here is more proof that the XBox division is making money.  They just built a new compound for the division, as seen here:

That opaque looking material covering up a section of the stairs is actually an LED curtain that reacts to people moving around in the atrium.

http://www.flickr.com/photos/majornelson/3513524497/in/set-72157617883678556/