Captain Harlock

I found this on gamermarketwatch.com...

Microsoft to "double down" on the X-Box

12.9.2002 9:17:02 AM
Microsoft May Double its Investment in Xbox

by Joseph Moran
There’s an old adage that says you need to spend money to make money, and its one that seems to be driving Microsoft’s philosophy when it comes to the Xbox.

Last week Microsoft said it would be committing more resources to its entry in the battle of the video game consoles and had no intention of cutting bait and leaving the game.

When asked during a Web cast whether Microsoft had an “exit strategy” for the Xbox console, the company’s Chief Financial Officer, John Conners, said, “The fallback position is probably to double down and make it successful.”

Conners' comments came at the Credit Suisse First Boston annual technology in Scottsdale, AZ, which was closed to the media.

Microsoft has yet to disclose what it’s spent on the Xbox console thus far, but the Xbox is part of the home entertainment division, which lost $177 million in the last quarter.

For the past year, both Microsoft’s Xbox and Nintendo’s GameCube have been slugging it out against the front-running Sony PlayStation 2, which had an eighteen-month head start and now commands an overwhelming market share. Which company occupies the second-place spot depends on who you ask.

Although the video game market has been healthy, there is some doubt as to whether it can support all three consoles in the long term. There has been speculation that either Microsoft or Nintendo may choose to abandon its console and get out of the video game hardware business, much like Sega did with its DreamCast console in 2001.

aa-dvd

I thought that MS originally said that they were putting out the xbox knowing that they would lose money, but get "their foot in the door" in the console world. It seems to me that they realize that with a little more push (advertising, bundles, etc.) that they might come out better then they first expected.

I also heard that it would take a user to buy 12 games or something like that to make MS a profit on each unit.

Well, after 1 yr I have 10, hmmm.....

jeffdsmith

What would you expect them to say?

Does anyone know how much MS's home entertainment division made/lost the years prior to xbox?

jabbas

good point. Those old school Miscrosoft Flight Simulator games aren't exactly why Bill Gates has 9 zeroes behind his name...

Captain Harlock

According the the website ITworld.com Microsoft posted it had a net profit of $6.59 billion for the last quarter of the year 2000.

At the time the article was written ( January 19, 2001) Microsoft had $26.89 billion in cash reserves.

Here's the link for the entire article.

ITworld.com

joshd2012

I don't know about the Home Entertainment Division, but Microsoft as a whole hasn't done as well since the X-box:

Net Income
1998 - $4.490 Billion
1999 - $7.785 Billion
2000 - $9.421 Billion
2001 - $7.346 Billion
2002 - $7.829 Billion

If you notice, up until the year Microsoft relased the X-box (2001), they were gaining about 2 Billion every year in net income. Since the release, net income has not been able to rebound.

Also notable is the fact that Microsoft's net income was over 2 billion for 8 quarters straight, until the X-box was released (that quarter their net income was $66 Million). Since then, they have not held a steady net income over 2 billion. Not hurting, but I don't think investors like that kind of inconsistency (atleast, I wouldn't).

Edit: Source: http://www.microsoft.com/msft/downlo...eStatement.xls

Josh H

I'd say the revenue trend is just do the the sluggishness of the tech industry as a whole, rather than anything related to the X-box.

"Doubling down" is no surprise. MS has indicated that they'll do (spend) whatever it takes to gain market share. Gates is determined to rule the home entertainment industry as well as the PC industry.

kvrdave

I would guess that the loss is close to $125-150 million of the $177 million loss of home entertainment. Really a drop in the bucket based on what they make. They are in the enviable position to feed it for years without hurting anything, just to wait for someone to make a mistake.

It is just a pet project for them, and it won't go away any time soon. I don't think they want to give the impression that if you buy something with the microsoft name that you won't have support in a few years because it went under. That alone will make them feed it.

young

those numbers are awesome and if i were an investor, i would be very happy w/ them; especially in this market.

jeffdsmith

Those numbers didn't answer my question.

TeeSeeJay

I don't think the XBox is even a significant portion of those numbers. We all know what happened to the economy in 2001, and a sector hard hit is the sector that MS lives on: corporate IT spending. The bulk of their revenue comes from licensing their software products to businesses -- including OEMing Windows onto PCs. Their retail ("home") users don't even matter.

Captain Harlock

from Brubiz.com

brubiz.com

It won't let me copy and paste but for those but according to the BBC, Microsoft's reported revenues for the quarter ending September 30, 2002 at $505 million. So let's do the math;

$505 million in revenue but they "lost" $177 million.
That would mean their total expenditure would be $682
Million for the Home Entertainment division.

And they are ready to throw another $2 billion at the console.


This from Yahoo UK...

Yahoo UK

jeffdsmith

Seeing how MS spent 500 million to launch the console, bought Rare, secured exclusive games, constant advertising since it's launch, price drop, included software, rebates, etc. I would think it's safe to say that MS has spent well over the billion mark on the xbox.

What I want to see is their home entertainment revenues before xbox, because then we would be able to tell just how much of negative impct it has had.

juanmgonzalez

Well, since August of this year, I have close to 30 games. MS has made a profit from me....

myopic_Raiderfan

What about Microsoft Bob?

jeffdsmith

I remember thinking Bob was so cool back in the day. I was such a tool. Probably still am.

Sloth911

i like how we are arguing about $500,000 million when the company made $7.8 BILLION dollars in one year!

LOL

i also like how Bob is always brought up, pointing out how it was once of MS's failures. despite msdos, win 3.1, win95, win98, XP, and all the MS Office products!

MS will not give up on the xBox!! they have people buying a MS product, and plugging it into there TV!

just think, because of MS, most houses have at least one, if not more PC's.

before they had to get people to buy a $1000 pc to get hooked on ms, now everyone already has a TV!!

MS relishes the idea of getting there stuff connected to TV's, cause everyone already has one, two, three or more!

I am sure the are willing to lose a FEW BILLION in order to gain some control over how you entertain yourself with a TV....

it may take as long as it took MS (or longer) to almost completely dominate home PC's with MS software,

but they have a goal to get their foot in the door of the video game market, and then keep pushing the door open farther and farther, and making a total of over $34 BILLION in the last 5 years, they can try as hard as they want!

when the games start to push the hell out of the ps2 hardware in a year or so, and the xbox can handle them better, that is when xBox will take off, that is what MS is waiting for... they are ignoring the red, cause they can see the future, and it is all green!

damn_skippy

I would like to point out that MS has only lost 176,999,879.83. I went buck wild last night at wal mart. Anything to keep food on the table at the ol' gates household. IMO

joltaddict

I read an article when they launched the Media Center version of XP that had the exact numbers but I cant find it anymore. I remember it was profitable but a drop in the bucket to Microsoft as a whole. So from what I recall all of the losses (and then some) are attributable to the Box.

jeffdsmith

Thanks Jolt. Do you have any idea how profitable?

joltaddict

I remember I wasnt particularly impressed. Im fairly certain it was on ZDNet. I know it came in one of my work ecommerce newsletters.

CreatureX

Why are these "business journalist" even asking MS if they have an "Xbox exit strategy"? Are things looking that bad from the business side of it?

Kellehair

There's no way to lose money and look good.

Sloth911

its easy to make lsing money look good.

pameala anderson dropping a quarter down a caulvert, and trying to pick it up.........

damn, if that doesnt look good...

gcribbs

because they know that MS will continue to lose money for the next 2-3 years. Then they need to launch the XBox2 which will lose money for at least the first year or so like all new consoles.

If I owned stock i would see the additional 1-2 billion dollars of loses as money that is not raising the stock price for me.

Plus the PS3 will launch ahead of the XBox 2 unless MS cuts the lifespan short on the XBox1 a no win situation for them. Right now they seem to be leaning on pushing the XBox 2 out early to go head to head with Sony. If they lose that matchup ...

Worldwide MS is taking a real beating and only them clinging to second place here gives them the ability to say they are in second when they are in third place overall.

Nintendo is making money on the GC so they will not get out so the only company losing money is MS.