Sunday, July 22, 2007

Xbox360 sales drop 60%



Sales of Xbox360 consoles have dropped by 60% in the fiscal fourth quarter, InformationWeek writes (via Yahoo News), citing Microsoft Investor Relations information.

In its earnings statement for the quarter, Microsoft said it shipped 700,000 Xbox 360 units during the period, compared to 1.8 million in the fiscal fourth quarter of 2006 -- a fall off of 61%.

Microsoft's Xbox operations are housed within the company's Entertainment and Devices Division. The group saw fourth quarter revenue drop 10% year-over-year to $1.16 billion on an operating loss of $1.20 billion. The group lost $423 million the previous year.


Recently, Microsoft owed up to the Xbox360´s failure rate being "unacceptable", extended the warranty to 3 years and reserved more than one billion US dollars to cover repair costs. Altogether, the Xbox division incurred losses of around six billion US dollars.

Subsequent to the announcement, Microsoft´s senior vice president of interactive entertainment business, Peter Moore, left the company to head EA Sports.




When I asked Peter Moore about a possible price drop for the Xbox360 at X06, he shrugged off the suggestion with that confidence bordering on arrogance that had become his trademark. Undoubtedly, his departure is as big a loss to the Xbox division as it is untimely.

The only other high level executives to leave the Xbox team were Ed Fries in 2004 and Kevin Bachus in 2001 - and neither possessed Moore´s charisma. We may think of his tattooed PR messages as embarrassing and corny. But the message got across and that is what counts in his business. Nevertheless, there are rumours surrounding Moore´s departure.

There is a question as to "whether the story presented by Microsoft was accurate," said Van Baker, an analyst with industry research firm Gartner. He said that, because the departure came not long after Microsoft's announcement about Xbox hardware failures, "you wonder if he was pushed."


Other experts believe that Moore´s departure will actually have a negative impact upon the Xbox360´s success, at least in the short term.

Geoff Keighley, host of Spike TV's Game Head series, agrees. "This is a huge loss for Xbox. … Gamers will no doubt wonder what this means for the future of the platform. Xbox 360 will be fine. Peter's not the visionary behind the platform, but he was the voice and the soul of that whole division of Microsoft and the public cheerleader. Xbox will continue on without Peter, but I have a feeling that his departure will knock some wind out of the platform. … It's shocking to see him leave right before Xbox heads into the biggest holiday season ever. He's spent years building up for this fall with a remarkable lineup of games and now he won't be around to 'finish the fight' as they say in Halo 3."

Moore, who officially joins EA on Sept. 1, wanted to move back to the San Francisco bay area, says EA spokesman Jeff Brown. (...) "Another thing that makes Peter particularly attractive is that during his time at Microsoft nobody as mastered online like (the company did)." Wedbush Morgan Securites' Michael Pachter called EA's acquisition of Moore "a significant positive for EA."

Microsoft beat Sony and Nintendo to market and certainly established their platform with more than ten million units sold. But at what cost? Sales are slowing down massively as the hardware defects become an ugly stain on Microsoft´s reputation.

Wii has narrowed the gap to less than a million and is poised to claim the number one spot in a matter of months, certainly within the year. And Microsoft has had only multi-billion dollar losses to show for its brave venture into the home console market.

Of course, there are some fantastic Xbox360 games around the corner which may yet help the Xbox out of the reds for the first time. But still, adding up all the prospective profits and very real losses, Microsoft should seriously consider leaving the hardware business after their second console´s lifetime is over. In fact, I would be very surprised to learn that they are planning a third Xbox.

Sources: InformationWeek (via Yahoo News), NewsFactor (via Yahoo News), USA Today (via Yahoo News)
Thanks to: Some Guy

22 comments:

Touch-Gen said...

Personally I think Microsoft is as irogant as Sony. Microsoft XBOX didnt sell so why should the same console with enhanced HD graphics do the same? Microsoft really needed to do something different like Nintendo and I think that fact has slowly came to them.

FAL SAID: "I would be very surprised to learn that they are planning a third Xbox".

Likewise...I dont even think Microsoft made a profit off the first XBOX never mind the 360 with its 6billion loses. I think Sony should also look at MS business strategy because they too could head in the same direction and Sony isnt as BIG of a finanical powerhouse as Microsoft.

In all...could Microsoft and Sony need to relook at their strategies? I for one think so. They are losing so much money that if there gambles dont pay off then, this could be a one way race with Nintendo alone.

Touch-Gen said...

@ Falafelkid

SCEE president David Reeves recently said that christmas isnt a critical time for Sony and that 2008 will be. But isnt the first two years of a console lifespan the most critical, isnt this the time when the victor gathers more momentum and gains the upperhand due larger install and therefore developers support which inturn increses the amount of intrest of both retailors and consumers.

It just seems weird that Sony would dismiss a holiday season considering the importance of it.

whats your thoughts on this?

P.S: BTW Falafelkid, well done on your scope on pingpong game. It a big reason why I continue to come here...its a great blog. So thank you.

Anonymous said...

Oh they'll make a 3rd xbox for sure although they probably will make it more mainstream out of the gate.

Grandmaster B said...

I think MS has a very long term plan with the gaming market and sees it as more than just a gaming device but a entertainment 'portal'.

I'd nearly put money on they will launch another system.

Touchgen, Sony are just saying that as their flagship titles are finally coming out in 2008 (as I recall, correct me if I am wrong)and know they dont have much this coming Xmas season when Nintendo have a nice lineup.

PS3 regardless of how stunning the titles look, isnt on the virge of being a successful business venture due to many limitations on finances and the need of long term programming/designing.

Falafelkid said...

Hi Touch-Gen.

I agree with you. Just one thing:

I dont even think Microsoft made a profit off the first XBOX never mind the 360 with its 6billion loses.

I should have made that clearer: the six billion dollar losses are losses within the Xbox division since 2002, so the original Xbox is partly in there. And the original Xbox made no profit whatsoever. How could it, after selling hardly more than twenty million units, pretty much like the Gamecube? (Only the Gamecube was never sold at a loss, I believe.)


It just seems weird that Sony would dismiss a holiday season considering the importance of it.

whats your thoughts on this?


Yeah, that seems very strange. If you look at a graph showing console sales over time, you will notice that winter is the best season for sales. Where did Reeves say that? Weird statement...

P.S: BTW Falafelkid, well done on your scope on pingpong game. It a big reason why I continue to come here...its a great blog. So thank you.

Thank you for your comments. You are very welcome. I have simply the fortune of being told a few things in confidence, which I can share on this blog. And I hope to continue to do that.

Hi Grandmaster, hi Anonymous.

I really wouldn´t be so sure about a third Xbox. If I was a shareholder, I would revolt. However, a point can be made for continuing a brand that has been established, painstakingly at that. But weighing up the odds, I would still vote in favour of Microsoft pulling out.

Superuser said...

I wouldn't wonder if MS drops out the console market, but as someone mentioned before, they probably hope to benefit in the long term.

Probably they try to establish some branding recognition through the "positive" signals they send through XBOX-stuff, to get a comparable fanbase like those of Nintendo, only with the sideeffect, that MS has alot more that they can sell besides gamestuff...

I guess they just try to copy Apple's iPod "Halo-Effect" for making sure they have new consumers in the future.

some guy said...

Where did Reeves say that? Weird statement...

Right here

Touch-Gen said...

@ Falafelkid

“Where did Reeves say that? Weird statement...”

He said it at gamesindustry.biz

Anonymous said...

i think whether or not microsoft pulls out of the console business entirely depends on whether or not sony does.

then again, i think whether or not sony pulls out after this gen depends on whether or not microsoft does, so it seems to me that it's a kind of a dead heat/stalemate.

remember sony's "ten year plan"? seems to me that gives them plenty of time, as an alternate motive, to watch what microsoft does next. if microsoft launches a new console 5-6 years into sony's 10-year-plan with all the right fixin's-- twice ps3s power, motion controller with direct-pointing device, full backwards compatibility with xbox/360, and a killer line-up of exclusives, that'll be sony's end.

if microsoft decides not to make a new console (god forbid) sony will have ultimately "won" by playing the waiting game, and will launch a new console 7-8 years into the ps3s lifespan.

they can't and won't *both* drop out. that would just be stupid. if one drops out, the other stands to benefit immensely.

what do you think of this evaluation, falafelkid?

-"superfan" tactics.

Anonymous said...

what if...

what if microsoft and sony both decided to drop out of the console game, and EA decided to make a console. EA games are exclusive to their own console...

it wouldn't be "the end" for nintendo, but it seems to me that all three of those entities teamed up against nintendo would take a huge chunk of nintendo's pie...

-"superfan" tactics.

Touch-Gen said...

@ Anonymous

"I think whether or not microsoft pulls out of the console business entirely depends on whether or not sony does".

Unfortunatly business doesnt work like this. Both Sony and Microsoft are huge companies, specially Microsoft. Now if Sony loses alot more capital then it may need to rethink its business strategy because it simply wont be able to sustain itself enough to stay in its current situation. Microsoft on the otherhand I think will be able too, after all they have just released VISTA and im sure itll gather more pace in the next few years Which should help Microsoft recoup some of there losses.

Sony also says they have a ten year plan and yet havent revealed any details to suggest so. Its just hearsay. My theory is that Sony is just riding the same wave they started with the PS1/2, in other words I believe Sony thinks people will just following them into the next generation even with a higher cost to the consumer. Unfortunately for them they have missjudged there market entirely. Which surprises me because most of PS1/2's user base is made up out of casual gamers, this is why these two systems sell well after five years because casual gamers come and buy the system at a cheaper price.

"if microsoft decides not to make a new console (god forbid) sony will have ultimately "won" by playing the waiting game, and will launch a new console 7-8 years into the ps3s lifespan".

Again if Microsoft cant afford this fall, how will Sony? Sony is more likely to go the way of SEGA than anyother 1st party developer at the moment.


"what if microsoft and sony both decided to drop out of the console game, and EA decided to make a console. EA games are exclusive to their own console...".

Then god help us all..the last thing we need in this industry is a company that keeps sending out the same game every year! Then again, people do buy them...is this the end!!!!

some guy said...

@ touch-gen

Good points but allow me to disagree with a few of them.

Again, if Microsoft can’t afford this fall, how will Sony? Sony is more likely to go the way of SEGA than any other 1st party developer at the moment

Both Microsoft and Sony are still very profitable companies. They are both currently operating in the black despite losing money in their game divisions.

The difference between Sony and Microsoft is that the X-Box brand never turned a profit since it launched. Sony on the other hand has had more then a decade of profits off of the Playstation brand. Also if the blu-ray format wins over HD-DVD Sony stands to make an enormous profit off of the licensing fees. This is why Sony is taking such a huge gamble on the PS3. Only time will tell if their gamble actually pays off.

Personally I don’t think that either Microsoft or Sony will drop out after this generation; this just reminds me of a few years ago when everyone was claiming that the GameCube would be Nintendo’s last console.

P.S.

I also fully agree with you that Sony completely misjudged their audience. The price point is far too high for the average playstation 2 owner even if they want to switch over to the PS3.

Touch-Gen said...

@ some guy

“Again, if Microsoft can’t afford this fall, how will Sony? Sony is more likely to go the way of SEGA than any other 1st party developer at the moment”

I wasnt saying Sony would, I totally agree with you in that Sony have made profit. Its a fact! I was merely suggesting that if Microsoft couldnt afford another console then neither could Sony... In other words Microsoft is loaded and isnt going anywhere and in turn neither is Sony for the time being. Just too clear that up for you :)

Grandmaster B said...

From what I recall Sony was making most of their profits on the software side than anything else with the past gens.

Both Microsoft and Sony are still very profitable companies. They are both currently operating in the black despite losing money in their game divisions.

The difference between Sony and Microsoft is that the X-Box brand never turned a profit since it launched. Sony on the other hand has had more then a decade of profits off of the Playstation brand. Also if the blu-ray format wins over HD-DVD Sony stands to make an enormous profit off of the licensing fees. This is why Sony is taking such a huge gamble on the PS3. Only time will tell if their gamble actually pays off.

Personally I don’t think that either Microsoft or Sony will drop out after this generation; this just reminds me of a few years ago when everyone was claiming that the GameCube


You have to remember here they are all different sections of the company. Major shareholders want profit, not losses and the Xbox part of the company produces negatives year in year out. Sony Japan/USA is heading the same way with the PS3.

Every part of a company is accountable regardless of if the whole group produces profit. It drags the company down and its share price and puts a lot of negativity to how the company is being run. Unless there is a plan that shows otherwise shareholders wont be interested in investing further.

And the difference between last gen with GC (referring to your last paragraph) is that the GC produced profit. As long as Nintendo produces profit they will always continue to build more consoles like any smart company would. You cant say the same for companies producing losses all of the time.

some guy said...

@touch-gen

Hi touch-gen,

Thanks for the reply, sorry if I came off as trying to correct/argue with you. I was attempting to clarify the Sony/Microsoft situation. :)

@grandmaster b

Hi grandmaster b,

I’m sorry but I will still have to disagree with you on this issue. I really don’t believe that this will be Sony’s last console, probably not even Microsoft’s last console.

From what I recall Sony was making most of their profits on the software side than anything else with the past gens.

True, while the majority of SCE profits came from the software, they still turned a profit from the hardware. Remember Sony had the weakest machine last gen; actually Sony always had the lowest system specs for the last two gens. This was not an accident; this kept the hardware cost extremely low and in the case of the PS2 allowed them to include full DVD playback by easily being able to pay the $20 per unit fee to the DVD forum.

Now regarding the PS3 they took the complete opposite approach. Whether this will pan out or not remains to be seen (currently it is not looking so good) but I will give both Sony and Microsoft the benefit of the doubt (In Sony’s case it hasn’t even been a year yet). They are both very successful companies with very talented people working with them.

And the difference between last gen with GC (referring to your last paragraph) is that the GC produced profit.

That’s not entirely true; it was during the GameCube era that Nintendo actually had a financial quarter in the red (first time in over 20 years) due to poor GameCube hardware and software sales. This is when Nintendo temporarily stopped the manufacturing of the system. Then later cut the cost of the console manufacturing by removing the component connection before production started again. This is why there were rumors about it being their last console. Also note that the majority of Nintendo revenue came from the GBA and later the DS during the GameCubes lifetime. This time around Nintendo is making huge profits on both fronts and doesn’t have to worry about cutting the cost of the current systems anytime soon.

Also on a related note here is a link to the Sony financial reports:

Link

Sorry for rambling on for so long, I’ll stop now :)

Grandmaster B said...

Without reading what I typed I didnt actually say Sony wouldnt develop another system. I said if it keeps going the way it is going it wont surprise me if they dont. In a financial outlook, it really isnt a viable business model unless they reinvent it.

At least with the GC it was profitable. You may say it had a red zone but the whole project was not and was very profitable. Nintendo are much more smarter at running a profitable business, no one can argue with that.

some guy said...

@GrandMaster B

Without reading what I typed I didnt actually say Sony wouldnt develop another system.

Actually I read your entire post

You have to remember here they are all different sections of the company. Major shareholders want profit, not losses and the Xbox part of the company produces negatives year in year out. Sony Japan/USA is heading the same way with the PS3.

Every part of a company is accountable regardless of if the whole group produces profit. It drags the company down and its share price and puts a lot of negativity to how the company is being run. Unless there is a plan that shows otherwise shareholders wont be interested in investing further.

And the difference between last gen with GC (referring to your last paragraph) is that the GC produced profit. As long as Nintendo produces profit they will always continue to build more consoles like any smart company would. You cant say the same for companies producing losses all of the time.
” //referring to Sony/Microsoft

It is pretty clear that you are at the very least heavily implying that Sony will not make another console. That is why I reached the conclusion you didn’t think Sony would be in the next-gen race.

I am not trying to argue/debate with you; we simple disagree on whether or not Sony & Microsoft will be in this for the long haul. You have very valid points, but it seems that neither of us will truly know for at least another couple of years.

But I guess we can keep speculating :)

I’m going to make a safe bet and say that regardless whether Sony and Microsoft stay in it is clear that Nintendo will dominate this generation of consoles.

I really went out on a limb there, didn’t I? :)

Grandmaster B said...

Some guy, not really saying that they wont by what I said but I can understand if you think that its what I am saying.

I am basically saying in the real world that if it continues this way it doesnt make much sense to continue in a business perspective. However as I have said above it depends on what they have planned. MS financially can definitely incur large losses for years to keep afloat but Sony is really banking on the success of PS3 (or Blue Ray rather). If the PS3 continues to fail no doubt their next system will be more econimical if they continue.

I do not want Sony to disappear but I dont care if MS goes away as there needs to be at least one competitor.

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