Microsoft has announced that its Home and Entertainment division, in which the Xbox 360 finds its base of operations, has recorded revenues of $1.14 billion during the current business quarter. This figure represents an increase of 94% over the same period last year.
The Xbox 360 shipped over 1.8 million units, which increases its worldwide user base to five million. But in spite of the good news for the H&E division at Microsoft, they still reported losses which surpassed that of 2005. According to the Big M, the division lost $414 million-a loss increase of 104%. A major contributing factor to the division,s negative numbers has to do with the 360. Microsoft loses money on each unit sold, as explained in Microsoft,s quarterly earnings report:
"Home and Entertainment operating loss increased primarily as a result of a $682 million increase in cost of revenue primarily associated with the Xbox 360, partially offset by the revenue growth. Our business model anticipates that while we currently sell Xbox 360 consoles at a negative margin, product cost reductions and the future margins on sales of games and other products will enable us to achieve a positive margin over the Xbox 360 console lifecycle."
Strangely enough, while the Xbox 360 is a “negative margin” seller (loses money), the original Xbox is still in the red as well. Since its introduction in November of 2001, the present console has lost over $4 billion dollars. According to Microsoft, “"Home and Entertainment operating loss increased primarily as a result of a $1.64 billion increase in cost of revenue primarily as a result of the number of Xbox 360 consoles sold and higher Xbox 360 unit costs, partially offset by the revenue growth. Our fiscal year 2006 operating loss increase was also attributable to the significant impact of Halo 2 in fiscal year 2005."
With its user base constantly increasing, the break-even point may not be far away as production costs for the 360 go down and unit sales increase.
