NEWS - Friday, July 20, 2007

Xbox Warranty Drives $1.9 bln Loss

Losses for the Entertainment and Devices Division (EDD) increased by 47 percent for the year ended June 30, due primarily to a $1.06 billion charge stemming from the extension of the Xbox 360 hardware warranty. Microsoft said reduced console manufacturing costs partially offset the charges caused by the upgraded warranty. Annual revenues for the EDD (which includes the media player Zune, TV platform products and mobile embedded devices) increased by 28 percent to $6.08 billion, driven by Xbox 360 hardware, accessories, software and Zune sales. The fourth quarter in the EDD was down, with operating losses increasing 183 percent to $1.2 billion, again due to the billion-dollar-plus warranty charge. Revenues dropped 10 percent from a year ago to $1.16 billion due specifically to "decreased Xbox 360 console sales." Microsoft shipped 700,000 consoles during the quarter compared to 1.8 million for the same period a year prior. Xbox and PC game revenue decreased $265 million or 28 percent. The firm has shipped 11.6 million consoles to date since the Xbox 360’s November 2005 launch. Microsoft is confident that the Xbox business will be profitable throughout the current fiscal year. Overall, Microsoft announced revenues of $13.37 billion for the quarter and $51.12 billion for the full year, up 13 percent and 15 percent, respectively. Windows Vista and Microsoft Office 2007 were the primary earnings drivers. For the quarter ending September 30, Microsoft overall expects revenues of $12.4 billion to $12.6 billion and operating income of $5.0 billion to $5.2 billion. For the fiscal year, the software giant anticipates revenues of $56.8 billion to $57.8 billion and operating income of $22.2 billion to $22.7 billion.

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