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05.03.09

Microsoft’s XBox Group Still Operates at a Loss, XBox Director Quits

Posted in Finance, Hardware, Microsoft at 4:22 am by Dr. Roy Schestowitz

Rusty ships
XBox is still hanging in there

Summary: More depressing news for XBox 360 as it swings back to losses and the strategy chief jumps ship

A LOT of people are being misled by Microsoft’s PR, which makes it seem like XBox 360 is actually succeeding. In reality — truth be told — several years after the launch Microsoft is still losing money.

The loss comes after two consecutive quarters of profit for the division, which had long been notorious as an overall money-loser for Microsoft.

This is scarcely covered by the press, but more disturbingly, the usual fan sites were yapping about XBox results being great when the last report came out (with overall earnings down 32%). It was a lie. Here is more information:

The news was similarly scattered for Microsoft’s Entertainment and Devices division, which includes the Xbox 360 business. Total revenues for the gaming segment were down less than 2 percent to $1.57 billion, and where the division posted an operating profit of $106 million during last year’s second quarter, this year it ran a $31 million loss.

A year or so ago, Information Week revealed that Microsoft had lost about $7 billion in its XBox business alone. It seems to be one of the best-guarded secrets of Microsoft.

How can so much money be lost other than by selling units at a loss? Well, with an enormous failure rate (claimed to be around 67%), this whole business has become painful and almost suicidal. Even the editor of EDN has just published an article about those Red Rings of Death he has been getting on his XBox 360. It’s not a resolved issue; it’s a design flaw.

Back on Wednesday the 15th, I told you that my first-generation Xbox 360 game console had experienced the Red Ring of Death the prior Friday evening. I also shipped it off on the 15th, and the UPS tracking website reported that it was delivered to Microsoft’s Mesquite, TX service facility at 10:15AM on the 21st.

Microsoft fired its more responsible employee for saying he truth about the failure rates. He was called a “whistleblower” rather than a knowledgeable person who wanted to mitigate the risk of death (XBox 360s are reportedly catching on fire sometimes).

The situation in XBox is so miserable that even its strategy chief has just quit Microsoft.

MICROSOFT’s Xbox strategy boss Richard Teversham has quit the firm to join arch rival Apple, MCV can reveal.

This is also covered in:

Speaking of an XBox director who departs, here is another XBox director who recently departed in anger. He’s a film director though, not an executive director. We wrote about it some days ago and here’s more information:

Other XBox employees had similarly bad experiences. Over the past 2 years, many key employees of the XBox group simply ditched the company. We have some examples here.

“If you can’t make it good, at least make it look good.”

Bill Gates, Microsoft

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3 Comments

  1. Peter2 said,

    May 3, 2009 at 12:08 pm

    Gravatar

    It seems that Microsoft made a profit on their entertainment division for about 5 out of the last 6 quarters.
    Still making a loss therefore is a contrived statement as your blog has failed to report any of the profitmaking quarters.

    Roy Schestowitz Reply:

    Those quarters were far from making up for the billions already lost.

  2. Jose_X said,

    May 3, 2009 at 1:16 pm

    Gravatar

    I think Microsoft took a massive writedown on their xbox unit not long ago. I would be shocked if they could not pull out a profit in a few quarters following that massive loss.

    To date, how far is the red box business in the red?

    Does their entertainment division include profitable hardware and/or high profit margin PC software?

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