Let’s take a look at Operating Income:
The original operating income projected was $100(*) million – based on the same 2.1(*) million consoles sold.
In my model, if I use the 1.3 million consoles sold, the profit would have been $84(*) million. Not bad, but still quite a bit different from the actual $188 million LOSS reported.
However, based on MSFTs reports, here are some other facts:
For the Quarter:
“Research and development expenses increased $141 million or 38%, primarily reflecting increased headcount-related expenses, increased product development costs, and costs relating to Danger, including a $24 million in-process research and development expense.”
For the Fiscal Year:
“Research and development expenses increased $242 million or 18%, primarily reflecting increased headcount-related expenses and costs relating to Danger, including a $24 million in-process research and development expense.”
How is this relevant in the analysis and projection?
Basically, in the most recently quarter, R&D increased $141 million, representing a HUGE increase in the Q4 alone, since the total for the whole year was “ONLY” $242 million.
If you go by just regular projections and use the same amounts as the previous 3 quarters, the “increase” in R&D in Q4, should have been a more modest $34(*) million. This is what I took into account in my projections.
Therefore, the difference for the purposes of projection is $107(*) million ($141 less $34(*)).
Was this a one time increase? Or is it a permanent increase in R&D expenditure? It would be hard to tell. We’ll see in the next quarters.
So now, the profit projection if you take this unexpected increase is a LOSS of $23(*) million.
Continued next post for easy reading...
