Xbox back in the red

By Tom Bramwell Published 3 May, 2005

Operating loss for the March quarter.

Software giant Microsoft has announced its financial results for the first quarter of 2005, revealing that while the company overall saw solid profit growth, the Xbox division slipped back into the red with a USD 164 million operating loss.

Revenues in the Home and Entertainment Division, which primarily houses the Xbox project, actually grew year on year - rising to USD 583 million from USD 519 million in the same quarter last year.

The operating loss in the division also dropped year on year, falling to USD 164 million from USD 204 million, which could be seen as very positive - but can equally be interpreted in light of the fact that the previous quarter, ended on December 31st, saw the division post its first quarterly profit since the launch of Xbox.

That profit, USD 84 million on revenues of USD 1.27 billion, was largely driven by sales of Halo 2, while the first calendar quarter of 2005 has been much quieter for Microsoft on the software front. The firm will undoubtedly be hoping that the current quarter will be healthier, however, thanks to the launches of Jade Empire and Forza Motorsport.

In terms of Microsoft's overall performance, a little hit from the Xbox division certainly hasn't made any dent in the giant's progress. Overall revenues of USD 9.62 billion were reported for the quarter (up from USD 9.17 billion last year), with a gigantic operating income of USD 3.3 billion (up from USD 1.3 billion).

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About Tom Bramwell

Tom is Operations director of Eurogamer Network and Editor-at-Large of Eurogamer.net. He joined the company in February 2000.

Read more articles from Tom by visiting the Tom Bramwell archive page.

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Comments (33) Latest comment 7 years ago

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  • BartonFink #1 7 years ago

    Holy mother of...
    Revenue of $9.62 billion a quarter....
    Jeeeesauce

    Sounds like they could let Xbox run at a loss for a very long time to come if necessary.

  • Sid-Nice #2 7 years ago

    I think the Xbox 360, will beat the Xbox hands down for making the most losses.

  • BartonFink #3 7 years ago

    And what exactly are you basing that on Sid ;)

  • Clive_Dunn #4 7 years ago

    Well considering Q4 would have been Christmas, you sort of expect that's when MS will post the best results for Xbox ?

    Anyway, it's not about financial results - it's all about market share.

  • #5 7 years ago

    They can't keep this up forever (even if they can afford it).

    They have to show their shreholders that they are making money in all their divisions, or the shareholders will put pressure on them to shut down the loss-making division.

    And that's in spite of the NEED of Microsoft's to get boxes with their logos under your TV...

    The way I see it, if they fail to make a profit this time around, they'll have to close the division down... XBOX2 is their last chance to make good IMO

  • drumbaby #6 7 years ago

    I think they'll carry on until Sony are dead and Bill Gates can finally forget all about his tiny penis.

  • Blerk #7 7 years ago

    Lend us a few billion, Bill!

  • Smiggs #8 7 years ago

    They have to show their shreholders that they are making money in all their divisions, or the shareholders will put pressure on them to shut down the loss-making division.

    iirc they only making an operating profit on windows and office, granted it is a fupping huge profit but the rest runs at a substantial loss

    a conspiracy theorist would argue that they simply run the other divisions at a loss to keep their competitors small.
    Edited by 1 at 03/05/05 @ 09:42

  • Natalio #9 7 years ago

    I don't think Bill will shut Xbox anytime soon. They have said so many times how they are long term commited to the console business. I think they are ready to put all the money necessary behind the machines. Let's see what happens with 360. If it does not take off, it may mean some harsher changes.

  • Frogger #10 7 years ago

    Xbox 360 is not their last chance.
    Windows had 2 big failures (Windows 1 & 2) before selling correctly (Windows 3) and finally spreading all over the world (Windows 95 and sequels). Same for Internet Explorer.

    Anyway, they made profit on the last quarter 2004 with the Xbox division (thanks to the huge sales of Halo 2). This shows the shareholders that even with an install based of only 20 millions, profits are possible.

    As they expect a much bigger success on 360 (and I really think they will succeed), huge profits will be there before 2010.

  • #11 7 years ago

    "Windows had 2 big failures (Windows 1 & 2) before selling correctly (Windows 3) and finally spreading all over the world (Windows 95 and sequels). Same for Internet Explorer. "

    Yes, the way IE is "selling" is rather ... interesting.

  • andrewfromdoncaster #12 7 years ago

    Holy mother of...
    Revenue of $9.62 billion a quarter....

    That's not all that much you know. Many British large companies make that much, particularly if you consider the state of the dollar. Microsoft's real gain over everybody is their immense profitability, at a third of total revenue. Because they only have high fixed costs and low marginal ones, they can make huge profits from small revenues once the fixed costs are covered. Also, their lack of competition allows them to cut down on advertising and charge uncompetitive prices. Writing windows a few million times onto CD has to be far cheaper than creating windows afresh a million times.
    Edited by 1 at 03/05/05 @ 10:35

  • Frogger #13 7 years ago

    "Yes, the way IE is "selling" is rather ... interesting."

    It's not about "selling", it's about not giving up after a failure.

  • Graeme_N #14 7 years ago

    While I think the Xbox 360 faces the risk of being "Dreamcasted" by coming out before PS3, Microsoft's pockets are so deep that they can afford to play the long game, which Sega never could.

    I think MS have done a fairly good job of getting a lot of Japanese developers on board (something the first Xbox lacked), and the more big name exclusive titles they get on board (either by having the most attractive platform to develop for, or simply by throwing money at people), the more chance they'll have of unseating Sony.

    It will be interesting to see how the next generation goes with the roles reversed (ie Microsoft with the initial sales lead and Sony with the more powerful console). I can't see Nintendo playing any significant part this time around (but maybe the Revolution will surprise me...).

  • Hurleybird #15 7 years ago

    "I think they'll carry on until Sony are dead and Bill Gates can finally forget all about his tiny penis."

    LOL! It's funny because it's true!!

  • Tweakmonkey #16 7 years ago

    Xbox is doomed! ;-)

    I'd be sorry to see Microsoft quit after all this effort. Competition is good (and funny sometimes), so I'm a happy chappy to see them slug it out with Sony. I think MS hope that the competition will wither and die, but somehow I don't think this gen will be much different to the last.

  • Tweakmonkey #17 7 years ago

    Wrobel - it is my perception that MS business practices usually involve destroying the competition through anti-competitive behaviour. From what I have seen in the past this involves destroying any competition quickly and becoming the dominant player. However it is my opinion that they will not become dominant in the next gen either.

    /bows

    /exits stage left

  • gamesb*tch #18 7 years ago

    Microsoft's strategy is to have people's viewing (playing, reading, wadever) entertainment on a MSoft device/GUI/system. This is not a loss to them, this is a marketing spend for future proofing their dominance of the entertainment market.

    The press garnered from the launch of Xbox 360 alone has a net value... and it's very, very much higher than you'd probably guess...

  • Sid-Nice #19 7 years ago

    And what exactly are you basing that on Sid ;)

    Don't get me wrong, I think the Xbox is a great console and I'm sure the 360 will also be top quality. But the timing of the Xbox 360s launch has Dreamcast written all over it (and that's nowt to do with the logo) The Dreamcast was also an excellent console and probably had the best games ratio of good games, per total games released. If Sega had of had the financial clout of Microsoft they'd still be in the console hardware business.

    Anyway stuff this, what I want to know.... Is who's this Sid guy?

  • Sid-Nice #20 7 years ago

    Hurleybird Wrote: "I think they'll carry on until Sony are dead and Bill Gates can finally forget all about his tiny penis."

    LOL! It's funny because it's true!!

    I hope he doesn't get an enlargement for BGiE's sake. :)

  • Tweakmonkey #21 7 years ago

    Hmm - wonders where BGiE is...

  • smelliot #22 7 years ago

    Long live Sega. I so wish they had never left the console race.

    The Xbox will never destroy the Playstation's fanbase. There are way too many Sony fanboys for the new console to make a decent impact. Anyway, I'd rather the Revolution did better than the Xbox 360.
    Edited by 1 at 03/05/05 @ 16:26

  • Vin #23 7 years ago

    "Last time I looked, Gamecube hasn't "done a Dreamcast" either, and Nintendo are making a fucking fortune, so what's your point?"

    Mate, no one gives a toss about their profits.

    Well, apart from those teary-eyed nancies who concoct scenarios where Nintendo returns to the top of the market.






  • Bill Gates is Evil #24 7 years ago

    time to be blunt.

    If you think Microsoft will ever cancel it's console business because it is not profitable, you are completely fucking retarded.

    Microsoft is going to do what it takes to capture market share. Microsoft doesn't give a fuck about profits because IT DOES NOT NEED PROFITS.


    Many British large companies make that much, particularly if you consider the state of the dollar...

    What the fuck are you talking about?

    Revenue isn't the means in which you judge a company. Market capitalization is the markets way of giving a value factor to a company. There isn't a British company that comes anywhere close to Microsoft's market cap. Hell, Microsoft is worth about 1/6th the United Kingdom's entire economy-- at their stocks peak in 2000, they were nearly 1/2. There isn't a European company that comes anywhere close to making Microsoft profits. Each time a European company gets big, Americans just buy it!



    Allow me to put Microsoft's Xbox division into perspective for you. Microsoft lost $134 million on the Xbox in this quarter.

    Back in December, Microsoft paid a $3 dollar per share dividend to its shareholders with no strings attached. Microsoft has about 10 billion shares outstanding. Microsoft GAVE AWAY $32 billion dollars in cash in a single day.

    Compare a 32,000 million one day giveaway with a 134 million quarterly loss, and maybe you'll realize how completely irrelevant the Xbox's profitability failure is to Microsoft. They don't give a flying fuck if they aren't making money on the system in the present, they just want market share.

    And they are getting the market share. I've been saying it since 2001, and i'll continue saying it until it has become a reality: Microsoft is going to dominate this industry, and neither Sony nor Nintendo has the capacity to do anything about it. Sony and Nintendo do not have the resources nor the brains to compete with Microsoft for very long. Before they had the experience advantage. That's gone now, too.

    This industry was born in the United States, gracefully captured by the Japanese, and is now in the process of being retaken by the Americans. Europe releases N-Gage. World laughs.

  • Nikanoru #25 7 years ago

    Hah, a BGiE prediction. Now we know for sure Xbox is doomed. ;p

  • ruttyboy #26 7 years ago

    /does the BGiE dance

    Insult me! I'm a European!

  • Lutz #27 7 years ago

    I'm insecure about myself and have no confidence.

    BGiE is the guiding light. Praise him and worship him.

  • ruttyboy #28 7 years ago

    I agree Lutz as I am too frightened to not be a sheep and feel that I have to agree with everything the EG regulars say so that I am accepted. I'm too weak to be my own person you see.

  • #29 7 years ago

    Poor BGiE... He's become so fanatical, he can't see beyond his own distorted logic...

    BGiE.. You're the most retard, laughed at person I've seen on this forum to date... Even that dude who believed in Jesus and wanted to save us all wasn't as bad as you....

    Your numbers are wrong btw... But lets not argue about them... Here's the facts you are ignoring/missing...

    If Microsoft do not succeed in pushing the XBOX under the TV's of the masses this time around, they will not only lose this supposed 'console war' but stand to lose a great many other things; the most significant for them is the stranglehold monopoly on the home OS and thus the mindshare of the world for Windows, home entertainment, and communications (web/net/chat/email/online purchases). They are being attacked on many different fronts, only this time around, there will be a co-ordinated attack at their business from many different industries that know they must break Microsofts back, or all lose completely.

    I wish i could tell you what I know, but I can't. You can chose to believe me or not but what is clear is that Microsoft really do have a hell of a lot more riding on the sucess/failure of the next 'console' than games marketshare.

    In time, more will become apparent to the end-consumer. I really cannot go into more depth (and frankly, I wonder if you would listen anyway).

  • andrewfromdoncaster #30 7 years ago

    Many British large companies make that much, particularly if you consider the state of the dollar...

    What the fuck are you talking about?

    Revenue isn't the means in which you judge a company. Market capitalization is the markets way of giving a value factor to a company. There isn't a British company that comes anywhere close to Microsoft's market cap. Hell, Microsoft is worth about 1/6th the United Kingdom's entire economy-- at their stocks peak in 2000, they were nearly 1/2. There isn't a European company that comes anywhere close to making Microsoft profits. Each time a European company gets big, Americans just buy it!

    Someone said there was a lot of revenue, and i was putting it into perspective. Also, the comment about the dollar was relating to your favourite subject - exchange rates! A weak dollar means that you don't need as many pounds revenue to equate to microsofts amount. I think the oil giants BP and Shell do pretty well, as do HSBC.

    And, revenue is a way of judging the size of a company. Maybe the economist didn't teach you that

  • The Old Bill #31 7 years ago

    Oi! Djini! Mapster kicks arse! Don't draw a line between him and BGiE.

  • #32 7 years ago

    Sorry Bill...

    /gets his eraser out and gets rid of the line...

  • Xerx3s #33 7 years ago

    Cuber Thug, this might not be the best place to vent your stupid fanboyism.

    Anyway, its most likely that the ppl from MS never even intended to make the xbx profitable. If i was to launch a console and had lots of money, my primary concern wouldnt be making a profit but creating market space for future plans.

    They kinda succeded in doing just that. They created a brandname that everyone knows. They succeded in creating things where others failed (such as xbl). And they got the atention of producers and game developers from around the world (and if they didnt, then they just threw in a big bag of money :) ).

    Anyway, they could win or loose, your guess is as good as mine and speculating on that is pointless (just as much as the statements about it). It doesnt depend on the money. It doesnt even depend on the quality of the avarage game on the system (if that where the case, they companies such as €A and Sony would have been out of buisiness long ago). Where does it depend on? Well, kinda the X factor. Creating a name that everyone wants to be assosiated with, a lifestyle symbol as a matter of speaking. If they can indetify themselves with the system, then they wil buy it and then they will buy the games. And in that, MS has learned its lesson.