| Fuzzmosis said: Investing at a large loss for several years is quite painful for any investor. They've definitely got their financial analysts working to lessen the blow as much as they can, and without question put the billion dollar loss for this quarter to help make 2008 profitable, since they would make shareholders happy. (Not sure if it works for American taxes, in Canada you'd need to demonstrate actually losing the money rather than saying you will, but less taxes on other profitable divisions with a 40% tax rate does make it only a 60% loss rather than 100%) But investing at a loss for years is very dangerous. If I invest 1 million for 1% (So 100 million capitalization) for a loss of 20 million, 15 million, 10 million, break even, then gain of 5 million, my 5 year investment has net me a loss of ... 400,000 dollars. If I had just banked that money, at 3% interest for 5 years.. I'd have gained 160,000 dollars. For a total net wasted income of 560k. Investors do look at opportunity cost. They hope that the consoles will take off as shown that they can, but with multiple year losses, you really really do not make the people enabling your investment happy. They are playing a risky game with other people's money right now. At least the Warranty and application gives some good will and gives them a chance to deliver. |
All quite true. I think this move actually cuts off some of the investor anxiety, however. The entertainment division was already going to be posting a loss in July -- tacking on the 1 billion cost to that loss exacerbates it quite a bit, but the general tone is still, "This is the beginning of the console lifecycle and we were expecting to operate at a loss". By removing that bill from the 2008 statements preemptively, Microsoft will most likely post a profit now, instead of having another year where it seems like the division is sieving money.
The actual numbers aren't necessarily different, but the tone of the numbers is -- it's a positive gain now instead of continued losses. It's much easier to sell that to investors.
Also, it's probably the best time for Microsoft as a whole to eat this cost -- the changeover to Vista will swell the coffers for this fiscal year and will make other losses easier to swallow.
