XBox Price Cuts – The financial effect on the division – A FINANCIAL ANALYSIS

[Ail]

jkimball said:

bumidan said:

Squilliam said:
http://www.isuppli.com/rptviewer/default.asp?a=37390&cmd=inline heres some basic information. $550 is your baseline you can assume from. Thats how much it initially cost.

thanks squilliam.

though if that is how much it initially cost, that was back in FY Jun 06.

we just finished FY Jun 08 - and by all indications, they should be making a positive gross margin on the consoles, in my opinion.

 

But they state in the reports (gotta read the text, not just the numbers!) that they has lower than expected profits becasue they sold _more_ than expected XBoxes last year.  They admit they lost money on each xbox unit sold. So they are still negative on the units. They might be positive overall for the xbox ecosystem (ie Live games, etc) bit unti by unti they still lose money.

From 10-k "Cost of revenue decreased $683 million or 13%, reflecting the impact of the $1.1 billion Xbox 360 charge in fiscal year 2007 (which primarily related to the warranty expansion), partially offset by increased Xbox 360 product costs related to increased unit console sales."

Cost of revenue would have went down even more if it wasn't for selling all those Xboxes!

Margins on software are huge, MSFT overall margins are in the 70% range. I would crank up the margins on the software, you have it ~ 50% and set each Xbox unit as break even only - ie $0 margin on the actual xbox.

 

Margins on the software are nowhere near where you put it because most of those 90 millions software sales will be third party software, Microsoft only take a licencing fee on those.......

 

Your numbers would imply third party publishers and developers get close to no cash on games sold on the 360.

That is your big mistake, the software sold for 360 is in its huge majority not software developed by Microsoft so you can't compare it to Windows........

I can try to explain it in a simpler way :

Take a game sold 60$

3 main actors get their share of those 60$ :

- retailer

- Publisher ( who then shares with the developer).

- Microsoft through a licencing fee.

the biggest share is the one the publisher gets. Common accepted numbers for the licencing fee are in the 10-15$ range..........

 Microsoft just doesn't make anywhere near 30$ per copy of GTA4 or Madden sold.......

 Any analysis you did based on your software will as a result be heavilly flawed..

 Now divide by two the software revenue and you pretty much have to redo all the analysis.......