Topic: Microsoft's profits rise 65% despite poor Xbox 360 sales.

[Pugnate]

source

Microsoft's Q3 profits rise 65%

The fiscal third quarter was very kind to software giant Microsoft. The company witnessed a 32 percent increase in revenue to $14.4 billion USD, operating income of $6.59 billion USD and net income of $4.93 billion USD. Earnings per share also jumped 72 percent to $0.50.

"I am extremely pleased that we delivered a quarter of strong double-digit growth for revenue, operating income and EPS," said Microsoft CFO Chris Liddell, chief financial officer at Microsoft. "And I am looking forward to a very good finish to this fiscal year with strength continuing into fiscal 2008."

The strong performance from Microsoft in Q3 can be attributed to the launch of Windows Vista and Office 2007. The two products were heavily promoted and launched on January 30.

But while Microsoft did well overall, the Entertainment and Devices Division (EDD) saw its revenue fall during the quarter. The EDD’s operating loss dropped from $402 million USD to $315 million USD. Revenues, however, also dropped 21 percent during the quarter to $929 million USD.

Poor sales of the Xbox 360 were blamed for the lower performance. "EDD revenue decreased during the three months ended March 31, 2007 primarily because of decreased Xbox 360 console sales," Microsoft reported in its 10-Q filing. "During the quarter, we shipped 0.5 million Xbox 360 consoles as compared to 1.7 million consoles in the third quarter of fiscal year 2006, which was the first full quarter of Xbox 360 console sales. Xbox and PC game revenue decreased $393 million or 44% during the three months ended March 31, 2007 due to the decrease in console sales." Microsoft has shipped over 11 million Xbox 360s since its November 2005 launch.

The Xbox 360, however, wasn't the only culprit during Q3. Microsoft cited expenses related to its Zune launch as adding to the operating loss. Microsoft's Zune -- its first home-brewed competitor for the iPod -- was launched in November and is expected to pass the one million shipped mark in June. The company also attributed some of the blame to "increased Xbox 360 console warranty expenses." The company boosted the console's warranty to one-year in December 2006 and just recently announced a more flexible warranty program for owners.

Microsoft forecasts that EDD revenue for fiscal 2007 will be up year-to-year thanks to increased Xbox 360 shipments and increased Zune sales. The company’s rumored flash-based Zune could be instrumental in such gains.

I am surprised Vista is selling so well. I am also surprised the 360 isn't... I guess it will pick up with the release of Halo 3... something Que will be in line for days to purchase.

[angrykeebler]

Dude. I don't know a single person who owns a Zune. haha

[Pugnate]

Why can't some of these companies be aggressive with their products? The cost of production of an mp3 player is pretty low, and companies have a massive markup. Why not just sell it for $50-$100 cheaper. Why try to match the ipod?

Also I would laugh at anyone who owns a Zune. Even Microsoft employees are ashamed.

[idolminds]

MS could have had something special if the wifi sharing wasn't so limited.

[Cobra951]

Am I missing something?  They're comparing 1st-quarter sales this year against the previous quarter, and against 3rd-quarter sales during system launch, right?  Retail is dead during most of January, and all of February.  Stores usually don't even stock up on things, and some departments look like they're getting closed or moved.  A 21% drop from the Christmas quarter preceding it means nothing.  Even if it's against the 1st quarter last year, it means nothing.  The 360 was a hot new item then.  Then there's the small business of launch frenzy vs a year and a half later.  Hey, if the system's in trouble, I definitely want to know, since I bought one.  But this tells me nothing.

If Vista is leading Microsoft's profitability, then I'm really going to get depressed.

[scottws]

I am surprised Vista is selling so well. I am also surprised the 360 isn't... I guess it will pick up with the release of Halo 3... something Que will be in line for days to purchase.

I'm not surprised the Xbox 360 isn't selling well.  There is no true "killer app"/AAA title.  Gears of war is close, but I'm reluctant to call it that.  There don't even seem to be many "very good" games.

I went to Best Buy today to see if there is anything that I wanted to pick up, but I was underwhelmed.  I almost got Guitar Hero 2, but then I remembered I'm getting a house and also that a spiritual sequel is due out soon.

[MysterD]

If Vista is leading Microsoft's profitability, then I'm really going to get depressed.

Yeah, it means Microsoft will probably force out sooner more Vista Exclusive games...
....AND more game developers AND more publishers will support Vista Exclusive games sooner...

...DAMN....

[Quemaqua]

If Vista is leading Microsoft's profitability, then I'm really going to get depressed.

[gpw11]

A 21% drop from the Christmas quarter preceding it means nothing. 

We have to keep in mind that this is basically a blog, which pretty much accounts for the fact that it's making something out of absolutely nothing.  I don't know what microsoft's fiscal year is (obviously it's different from the US/Canadian gov's fiscal year) or if they're talking about a fiscal year at all in the blog or a calender year.  The only hint I'm given is that "EDD revenue decreased during the three months ended March 31, 2007..."  and the only answer I have to that is 'no shit'. 

Personally, thinking about how retailers make their operating float in the Christmas quarter (which includes boxing day and Black Friday) and accounting for the fact that Microsoft's console division had a very good Christmas quarter,  I'd guess that having ONLY a 21% drop is nothing but good news.