Why do people think that due to a greater increase in the cost of revenue then the platform revenue increased that the Xbox portion of MS business lost money. You cant just that. Lets put it in a way people can understand, You own a lemonade stand and your old flavor which you sell for $1 per glass is now kind of old and people starting to move on. That lemonade costs you 10 cents per glass to make. You still sell 100 glasses in a day. You introduce a new flavor and because of the new not mass produced ingredients you charge $2 per glass for this new lemonade. For now this lemonade costs $1 per glass just to make. So see how your cost of revenue increased, but you still profited.
The moral of the story is you cant determine profitability or loss solely on cost of revenue increasing more then revenue increasing. You need total expenses and total revenue to determine profitability.
From the report
Computing and Gaming Hardware Revenue $2.45 Billion (Surface Revenue was $908 million)
Computing and Gaming Hardware Gross Margin $479 Million (That is a profit)
Game Software is in another Segment
Devices and Consumer Other Revenue $1.809 Billion
Devices and Consumer Gross Margin $312 Million (That is a profit)
Its libraries that sell systems not a single game.
