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bumidan on 04 August 2008
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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.

 

Thanks for the feedback, jkimball.  To clarify your questions:

Let's break it down in numbers and text:

COR decreased by 683 million or 13%

FY Jun 08 - COR = $4,571

FY Jun 07 - COR = $4,194 + $1.06(RROD) = $5,254

FY Jun 08 is 683 less or 13% - simple mathematics.

If you take out the RROD - then yes, the Cost of Revenue went up - BECAUSE THEY SOLD MORE consoles - from $4,194 to $4,571.  But it does not mean that consoles are sold at a loss.  They mean that the COR went up - the actual number, not the per unit cost of the consoles.

Think about it, if we take into account that other segments did not see much change.  The increase or difference is $377 million.  But MSFT sold 2.1 million more consoles.

You can do whatever calculation you want, but $377 more cost of revenue divided by 2.1 million more consoles is impossible to work out - if you think that consoles are sold at a loss.

But if consoles have a positive gross margin, then the math works out beautifully.

 Does that make sense?  Please let me know.  Thanks again for your feedback.