@Squilliam

Exactly. Advertising and sales pitches/deployment for Office and Windows are EDD costs and yet the revenue goes to the Client and Business divisions.

I looked through the numbers and looks like they dont have obligation to round to 0.5%. All are to nearest 1%.

@Eagles: well thats unfortunate. One could probably work out about how much E+D division made/lost with greater accuracy if one was to go back through their financial records and work out what the range of data was for Xbox 360 sales.

With one data point the information is difficult to work out, but with three or five you could probably nail it to within 10% either way. But unfortunately financial analysis isn't my strong suit.

All you're doing here is proving my original point, which is that you can't tie profits or losses to any specific product in the E&D division.

Look, for all of the oversimplifying you've done, what you've got here is a whole lot of nothing. Not only is there the above, but there's the fact that you keep using scant and circumstantial evidence such as revenue to try to make your case. You stated yourself that the E&D division's profits were $299 million, which means that that in order for the 360 to have been profitable, those other products and services would have had to lose greater than 1.5 times as much money as the Xbox 360 did, but in less than 1/4 the time. Suffice to say that this is a little far-fetched, and that's being nice.

Like it or not, you can't prove which products lost or made money(revenue doesn't count) with any degree of certainty, so you don't have any conclusive evidence to make your point, so you fail on that alone.

Round off errors on 1% and 2% leave alot of room for error which I should off accounted for better. From the latest annual report we have the following.

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Fiscal year 2008 compared with fiscal year 2007

EDD revenue increased primarily due to increased Xbox 360 platform sales. Xbox 360 platform and PC game revenue increased $1.7 billion or 41% as a result of increased Xbox 360 console sales, video game sales led by Halo 3, Xbox Live revenue, and Xbox 360 accessory sales. We shipped 8.7 million Xbox 360 consoles during fiscal year 2008, compared with 6.6 million Xbox 360 consoles during fiscal year 2007.

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If $1.7 Billion is a 41% increase then the previous number was $4.14 Billion, this gives us gaming related revenue of $5.84 Billion for fiscal year ending 2008. So far in 2009 this revenue has only decresed by 1%. The 10Q filling for the 9months ending March 08 gives us.

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Cost of revenue increased $79 million or 11% during the three months and $143 million or 4% during the nine months ended March 31, 2008, primarily driven by increased Xbox 360 product costs reflecting increased Xbox 360 console sales, partially offset by decreased Xbox 360 manufacturing costs per console

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This places cost of revenue at $3.5 Billion which only decreased $60 Million so my $3 Billion original estimate was definately too low. Sales and marketing expenses are not listed in cost of revenue and from the anual report could easily account for over $1 Billion for the enitire division then there are all the aquisitions that Microsoft made in the Mobile space. 4% is still quaite low, but does narrow the margin for error a fair amount.

Two key points I would like to make are the near $6Billion in revenue generted by gaming which contradict clains that the XBOX is being subsidised by the EDD and that a very large chunck of the 1.3Billion in R&D expensed for the last 9months have been attributed to Windows Modile. It incresed over $300 million this year due to aqisitions on top of the $255 Million increase last year due to the aquisition of Danger (A Mobile tech company previously bought by Microsoft)

It's fairly clear that the XBOX is very profiably and that the current low income is due to substantial invesment in the Windows Mobile space.

I dont know what maths you are pulling out - the other products and services costed about half of 360 / PC and lost about $700m. I already said my educated guess is $4bn costs on gaming and $2.2bn on non-gaming from the PUBLISHED figure of $6.2bn in costs. The 360 and PC gaming is profitable by more than $300m (I say $1bn profit) but unfortunately other activity and products have caused it to go down to $300m. 

There is a difference between 'scant and circumstantial evidence' and published revenue figures and commentary. There is also a difference between 'Oh there is no exact breakdown of exact figures so anything anyone says is wrong' and actually looking at the figures / commentary in the reports and making educated deductions based on mathematics and business knowledge. I have done all my thinking based on actual numbers and commentary and if that is not good enough for you, then sorry I cant make you happy because it looks like only bad news for MS will. If you want to challenge my 'educated guess', then Id be happy to hear your breakdown of $6.5bn revenue and $6.2bn costs.

On a further note I looked at Zune sales and they are horrid. It only barely reached 2m last year so Im even wondering whether it could help make up the $1.5bn in non-gaming revenue. Windows mobile is getting kicked by iPhone, Surface isnt even on the market and Mac / PC apps and hardware are down (its in the reports). Hmm.. the $5bn is starting to look conservative now.

Cost of revenue = $3.5B
Revenue from gaming = $5.8B
Difference = $2.3B

Hmmm

There were 111,830,182 units of retail software sold @ $7.50 each = $840M per year in revenue from royalties at this point.

One could probably attribute an extra $200M est from Fable 2 + Halo 3 + Halo Wars selling a combined 5M in this time. So lets say $1B from 1st/2nd party and royalties.

Live revenues? Well lets see -> Its probably enough to take into account the other side, we have advertising revenue, DLC, Arcade games and subscriptions.

So could they be making $1B per year profit or more?

I'd just like to say your numbers are sound.

@Lord N:  Have you read the OP and looked at the numbers?  Everything makes a lot of sense.  Especially when you look at how much money microsoft is losing right now on windows mobile. 

 Hardware costs are the bulk of the cost of revenue.

@aderoche

Cool. Still proves that $5bn revenue and $4bn costs for 360 / PC gaming for 9 months are good estimates. Now the hard part is - how much is 360 gaming and how much is PC gaming :)

That revenue figure was for financial year 2008 (full year) wheras the cost of revenue was for the 9months so far this year. It probably still on the low side, but includes the cost of all revenue. I was just grabbing more info and looking to see if I could find something that contradicted my original estimates.

I can't find a 10Q report that breaks down cost of revenue and marketing expenses are practically nerver mentioned.

Of the $6.5 Billion in revenue we have something like

3.5+ billion cost of profit

1 Billion sales and marketing (how much of that is windows retail sales and marketing - those Sienfeld edds where not cheap)

1.3 billion R&D

300 million profit

400? Administrative expenses

We can tell that a large amount of the R&D belongs Mobile but the breakdown of the other expenses is impossible. Given near $5 Billion in revenue, you would have to assign all of the cost of revenue, all of the marketing and the remaining 500 million in R&D purly at the XBOXs feet in order for it to be unprofiable.

In order for the gaming to generate $1 Billion in profit you would need to move at least $500 million cost of revenue to non gaming revenue and assign no more then 500million sales and marketing and $300million R&D. This would allow for $200 Million administrative overhead. It's impossible to say if this is the case, but I can say that if it's less then $1 Billion then it's due to very large R&D and Marketing expenses which are discretionary and not due to manufacturing or waranty expenses.