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Microsoft Loses $177m on Xbox in Three Months
Posted by
CmdrTaco
on Fri Nov 15, 2002 11:29 AM
from the its-not-like-they-can't-afford-it dept.
from the its-not-like-they-can't-afford-it dept.
Albanach writes "The BBC News are reporting in this story that Microsoft's Home Entertainment Division has filed a submission to the Securities and Exchange Commission reporting a loss of $177 million for the three months to 30 September 2002. The loss comes on revenues of $505m for the division that manufactures the Xbox games console. Microsoft are said to be prepared to spend $2 billion funding Xbox live over the next five years, suggesting it will be some time before the home entertainment division break into the black."
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Microsoft Loses $177m on Xbox in Three Months
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Only $177m? Who cares? (Score:5, Funny)
Re:Only $177m? Who cares? (Score:5, Insightful)
Even if that's not a lot of money for MS, in Belgium it's forbidden to sell products for less money than you needed to produce it...
It's unfair competition.
If they put Playstation and Nintendo out of business because they don't have the money to use this trick, some American judge should finally see what MS is doing and give them a REAL punishment...
Re:Only $177m? Who cares? (Score:4, Interesting)
They make a huge profit on the games, so maybe that's a loophole or something.
Re:Only $177m? Who cares? (Score:5, Insightful)
America has so called anti dumping laws.
However they get only applied if a non american company tries to sell for dumping prices inside of the US.
E.g. Korean car manufactors selling 30% cheaper than US car manufactors or VCR crafting companies regulary got a punishment import tax.
The US puts taxes at will on any kind of product if they think their own industrie soffers from forreign laws. E.g. genetic manipulated Soja needs to be noted as incridience in european food(by law). Europeans as majority do not buy genetic manipulated food. Feeding animals with genetic manipulated food is not allowed, as it gets to difficult to prove its absence in the final products (like ham). Result: US is threatening europe with a tax war since years just because Soja sales droped in Europe.
However: what is legal and what not, all over the world, is final descided by a US court.
Silly situation.
angel'o'sphere
Thank god it is legal to "price dump" (Score:5, Insightful)
Look, I hate MS as much as anyone, but romaticizing Sony or Nintendo as good guys is a pretty biased view.
If people really cared about the good guys winning the console war, people would've bought more Dreamcasts. Since they didn't win, you just have to go on which one has the games you want.
Besides, we're not talking about Wal-Mart selling drugs below cost to drive the local competition out of business; we're talking about a "give the razor, sell the blades" pricing model here.
There's a world of difference.
Scott
No, it's an investment... and lots of stores do it (Score:4, Interesting)
Microsoft, like every other game console producer, takes a hit on the console. It isn't to put the other guy out of business (though sometimes that's a benefit), but rather, to get you hooked on a specific console. After that, they recoup their loss on the games. After all, who buys a console and then never buys a game? The only significant difference here is that Microsoft is banking on turning the profit in an online system, rather than just games.
Last year, the Sheetz gas station near us was selling gas for $0.95/gallon, significantly less than what they paid for it. It wasn't to kill the competitor, but rather to get people in the habit of filling up there. The money they made from their food, drinks, and various items inside the store made up their loss and they slowly raised the cost of gas to normal rates. I fully recognize that, but you know what? I still shop there and I'm not the only one.
Re:Only $177m? Who cares? (Score:5, Informative)
I'm sorry, but this is a pet peeve of mine. Every idiot in the world speaks authoritatively about dumping when they have no idea whatsoever what it actually is.
Here's a hint: "Selling a product at a loss" is not dumping. Not even a little bit. If you produced a product and gave it away for free, that still wouldn't be dumping.
Dumping is very simple: It is selling a product in a foreign market for less than you normally sell it for in your domestic market. If you don't believe me ask the World Trade Organization [wto.org]. So unless you believe that MS is selling the Xbox cheaper overseas (hint: they're not), MS is not dumping.
You may now all return to your ignorant, dogmatic lives.
Re:Only $177m? Who cares? (Score:5, Informative)
Info here [actsofgord.com].
To sum it up, most people (at this point) believe that Sony still makes at least $50 per console sold, Nintendo is just about breaking even, and Microsoft is still losing at least $70 per console sold. (this is taking into account drops in production prices, drops in sale prices, etc).
Re:Only $177m? Who cares? (Score:5, Interesting)
Sony is not stupid. They do not sell at a loss. Sega sold at a loss and is now defunct as a hardware business. Nintendo sold the Gamecube at a slight loss but most accounts have them as about even now. Microsoft has billions it can throw down the drain, and so it sells at a loss.
Also, just a FYI, when Nintendo sells at a small loss it is almost meaningless to them, and I'll tell you why:
When a game is sold for $50, maybe $20 of it is profit. Of that, typically the console maker gets $5, and the game producer gets $15. However, Nintendo is in a special position in that it makes most of the really popular games for it's own console. Thus, if they sell at a $20 loss (which is about twice what most people estimated), but you buy the Gamecube and a single Nintendo produced game (which I guarantee you will), they've broken even, because they get all $20 of profit.
Microsoft, on the other hand, does not produce the games. Therefore, even if you are nice and say they're only losing $30 per console (which is way below most estimates), they need to sell 6 games just to break even. How many people do you know who have 6 XBox games? I don't know any. Every person I know with an XBox has less than 5 games, and typically has bought a single extra controller. Every person I know with a Gamecube has at least 5-6 games and most of them also buy 3 extra controllers due to the number of good 4 player games.
Something tells me MS is the only company really digging itself into a hole in the console business right now.
Re:Only $177m? Who cares? (Score:5, Insightful)
Breaking into a market is hard. You need to be able to offer competitive prices from day #1, or else you will never attain any market share.
Companies looking to get into established markets against huge players (like Ninenton, Sony, etc) will loose money until their market share is sufficent.
Laws like the ones you propsoe actually *hurt* competition, because disallowing undercutting forces products to have high prices, therefore killing a company before it even has a chance for acceptance - example: PlayStation, Ninenton sell units for $200 (because they already paid for development a long time ago, before MS was in the market). MS has to sell Xbox at $999 to cover R&D to satiate your law. Xbox dies, and instead of having three gaming consoles we now have two.
Re:Only $177m? Who cares? (Score:5, Informative)
In British Columbia (A Canadian Province), the stumpage fees go to the government. The government then uses the money to ensure adequate regulation of the companies. Cutblocks get re-planted, streams are protected, roads are deactivated. The problem is that in the US, they have a auction systems for timber. Private landholders auction their lumber from their private land holdings. Not only do they have to do their own re-planting (adding expense) they also require a profit. (Adding more expense)
When you look at the lumber barons who are doing the lobbying in Washington, most are from the southeastern US. They sell inferior quality wood compared to BC softwood. THeir product is also higher cost, mainly because they refused to spend the money to upgrade their mills. So they produce a low grade, high cost product (very labor intensive) that simply cannot compete in the marketplace. The BC mills spent billions upgrading their mills to be highly efficient. Now they are being penalized for their foresight.
Inevitably, whenever a US industry gets into a non-competitive situation where they can't dominate, out come the lawyers and the lobbyists. (steel) The WTO will overturn this tariff. Until then, thousands of workers and business' in British Columbia will suffer.
Did I mention that the average new house in the US is costing $3K-$5K more? They don't tell you that in Businessweek do they?
Re:Only $177m? Who cares? (Score:5, Insightful)
I am not Microsoft fan, but I have to say that this is actually the oposite of what happened. You see Microsoft made a much more expensive console then Sony or Nitendo (to produce that is). Then, Sony and Nintendo started dropping prices and Microsoft had to do it to keep up. They were planning on Moore's law dropping the cost to produce them before having to drop the price. The difference between Sony, Nintendo, and MS is that from the ground up MS has been planning on selling the Xbox as a service (ie Xbox live) to make their money. Besides, Sony has a huge market share. Mod: -1, not Anti-MS (this time)
Re:Only $177m? Who cares? (Score:4, Informative)
Sony controls and designs (with sub-contracting) all of the parts within it's hardware. The X-box has to source parts that are made by lots of different companies, who each get a profit, not on only the manufacture of the part, but also the design. This adds to the overall cost of the part.
By designing all the components (well most), Sony have bitten the bullet on the one-off design costs, which comes along with a long-term volume saving.
There is quite an overhead with working with third-party parts as well. You have to consider the cost of quality control, sending broken parts back etc. All this costs money and time, and goes against the minimal-supply stock models that most manufacturing plants follow nowadays.
The other poster was correct about the part list, although it could have been phrased in a more civilised manner! ;-) The HD etc do cost money. In later editions of the PSX (the original ones), Sony dropped the parallel port and audio/video outs to save money. These are simple hookups to parts of the PCB that already exist, but by not having connectors on the back means that you have saved money on both the raw parts themselves, and the cost associated with testing and repairing them on the production line.
Re:Only $177m? Who cares? (Score:4, Informative)
http://www.extremetech.com/image_popup/0,
GameCuBe naked:
http://www.segatech.com/gamecube/overview
If only looking at the Basic motherBoard, you can see why people think the XBox costs more than a GameCuBe.
PS2 naked:
http://www.megagames.com/ps2/images/psx2-
The thing to note aBout the PS2 is that recently Sony has managed to comBine the Emotion Engine and the Graphics Synthesizer into one chip:
http://zdnet.com.com/2100-1103-877756.html
Meaning, of course, that there's less silicon and simpler manufacturing. So in the end, while we don't know the component prices, we do think that the XBox costs more Because it has more components (including the hard drive!), a more complicated motherBoard, a more complicated CPU, and less system integration than either the PS2 or GameCuBe
Apologies for the strange text, my copy of Mozilla 1.3a happens to map 'B' to 'Manage Bookmarks', so I've got to use 'shift B' instead.
You can stop kicking the horse now... Please? (Score:5, Insightful)
As for putting Sony and Nintendo out of business, somebody really isn't in touch with the real world. First, the XBox is nearly dead last in console sales. That differential will decrease over time, but unless Sony and Nintendo do something incredibly stupid or MS incredibly brilliant, that's not likely to change in this round of the console wars. Second, Sony is a big boy. It has a diversified market beyond gaming. Their products have global reach and ideal penetration within their respected markets. Sony isn't going anywhere. Nintendo, on the other hand, has a far smaller foundation and hasn't exactly been making stellar decisions as of late. They haven't had a great console since the SNES, and the Gameboy is STILL their principle source of income. They're more likely to kill themselves off rather than be a victim of any MS "dumping" campaign.
But it's just another day in the anti-MS neighborhood, I guess...
Accounting Tactic (Score:4, Interesting)
Re:Accounting Tactic (Score:5, Informative)
Windows: $2.48 billion on $2.89 billion revenue
Office: $1.88 billion on $2.38 billion revenue
Servers: $519 million on $1.52 billion revenue
compare that with a loss of $177 (and microsoft lost on many other things, like CE/Mobility) and you'll see that the picture is not as bad as it looks (heh, for them, anyway)...
Slashdot is aiming for the sensationalism value again, but that's nothing new now, is it?
Is this like a movie company's "loss" (Score:5, Interesting)
Like that hurts them.. (Score:3, Insightful)
"Lost" (Score:3, Insightful)
I just don't think that purposefully loses should count like a standard lost. They know that this $177m they drop now, it's an expense. Not a loss. They will get it back, they are just taking credit out on their budget and getting the government to pay the interest.
Re:"Lost" (Score:4, Insightful)
It's absurd that a company can consider a 200 million dollar loss "acceptable" and continue operating (under the same management) with plans for expansion.
This reeks of the ability to undercut the console market.
Re:Doesn't take a monopoly to invest lots of money (Score:5, Informative)
I object to the American populace losing ~$100M of tax money from Microsoft because Microsoft purposefully and deliberately priced the Xbox so low they knew they would have this loss.
Look at from a longer-term view. Microsoft does not intend to lose money forever. They want the books to be positive at the end of the day. The government allowing Microsoft to deduct losses now is an attempt to help Microsoft to become profitable in the future. Profitable in the future means revenues to the government. It doesn't do the government any good if they kill companies in the start-up phases before they get a chance to produce taxes.
$100M could do a lot towards fixing our schools so there aren't 55 kids in a kindergarden class. It's a start...
Two things to say about this:
1) It wouldn't do anything for the schools, since this is mostly federal taxes. Schools are locally financed (although, the feds have been sticking their nose more and more where they shouldn't lately)
2) I'd rather have Microsoft grow and create jobs for the parents of the children, rather than have the government take MORE of our money. The government has more than enough money to fix the schools. Insist on efficiency, not higher taxes.
Re:"Lost" (Score:5, Insightful)
No, they need to report this as a loss. Look, the Xbox division is a gamble by the larger company to enter into the home entertainment market. As with any gamble it contains a significant amount of risk. This loss quanitifies exactly how large a risk and let's the shareholders and prospective investors have some insight into how the gamble is going. Perhaps, this whole experiment will bomb
Ooze on over to infest the next marketplace (Score:5, Interesting)
They'll chip away at Sony and Nintendo's profits until even these successful companies can't make a profit.
I wonder why they're trying to pull out of the DVR market. They say that there's no money in it. Maybe. I thinks that maybe it conflicts with their DRM agenda.