Why It's Perfectly Fine If Microsoft Has Lost $400M On Xbox One

According to a recent SEC report, Microsoft's MSFT Xbox division revenue is now up to $1.7B annually, because of the Xbox One, but its costs are up to $2.1B, also because of the Xbox One. That’s yielded a collection of startled headlines about how Microsoft has dropped the ball with their new console by losing $400M already.

[IanVanCheese]

TL:DR - All hardware launches incur massive costs, it's pretty standard.

[HanzoHattori]

The PS4 console didn't.

[iamnsuperman]

Well actually we don't know. We know it made a profit last quarter and that is about it really

[HanzoHattori]

Then it's safe to say that this statement, "All hardware launches incur massive costs," isn't exactly true, unless you're including costs for packaging, advertising, and R&D, all of which are costs that are mostly incurred before the release of the actual hardware itself.

[OpieWinston]

It includes the costs of Advertising/R&D/Packaging/ Production...The total costs were high.

And they made a profit in their gaming division.
$893 Million in profits off Surface/Xbox (Computing and Gaming Division)

They made over 9.6 Billion over the course of the fiscal year off their Gaming division, but costs were so high for X1 R&D and Surface Pro 3 R&D.

"Cost of Revenue" includes R&D Hanzo...It's expected for the first Fiscal year financials to make a loss, but Surface covered it.
Edit
@Iamnsuperman
http://www.microsoft.com/In...
They made a profit off Surface and offset the losses of the Xbox platform.
The Android royalties aren't part of "Computing and Gaming Hardware" division.
They made a profit off that division, $893 Million.
The Surface had revenue of $1.3 Billion and costs of revenue were $970 Million. Do the math...

If you're going to say the Surface is losing money...Take it from MS own financial reports.

[Ballsack]

And counting the costs of kinect 2 development which has now basically been dropped...you can see why shareholders want to sell the division off, Xbox division is bleeding loses right now.

Fanboys wont like to hear it ...but facts are facts...

Microsoft face a uphill struggle but have some great games on the horizon not sure how much that will help but im stoked to play them anyway

[iamnsuperman]

@opieWinston

I don't think Surface covered anything. They have been loosing money on that for quite some time ( http://www.nasdaq.com/artic... ) . It is the biggest burner in that division. Something else is covering the cost of all this R and D http://www.businessinsider....

Edit @ your edit read this http://www.computerworld.co... . They use reports Microsoft supply. It is a mounting cost that doesnt just go away

[chuckyj1]

Sooo... How much was the Research and Development costs of the PS4? Or do you not have those numbers?

[TheGreatAndPowerful]

"Why it's perfectly fine that the Xbone lost almost half a billion dollars."

WHAT!?! MS investors do will not agree.

[otherZinc]

The "only" reason PS4 is making a $12 profit after losing $41 per PS4 sold, is the massive layoffs at every level & development studio at the PlayStation Division.

M$ has made a $71 profit off the XBOX ONE from the very fist day the XBOX ONE went on sale.

This is why the XBOX ONE Games Division suffered "zero" layoffs! The 200 layoffs XBOX ONE has, was from the short films division; not effecting the Halo Movies or Quantum Break Movie.

This Forbes Clown is a "contributor": to stir traffic.

[horndog]

@hanzo.

Of coarse ps4 had its losses at launch its just made it back because it's selling so well. Unfortunately the ps3 cost sony how many billions?? 9 BILLIONS?! Shit! 400million doesn't seem so bad now son.

[Provolone24]

@horndog oh look, it's you talking about PS3 sales again. You never do that.

And did you literally just say "9 billions" plural?

There is no hope for you, my friend.

[Gazondaily]

Well its hardly a great sign but yeah I think a lot of the costs are to be expected. But all those jumping on the 'Dreamcast 2.0' bandwagon are getting way ahead of themselves.

[SoapShoes]

To be fair if it wasn't Microsoft behind Xbox it would be a Dreamcast 2.0

[choujij]

The Dreamcast was generally a small success around the globe before Sega pulled the plug. If anything, Xbone is more akin to the Sega Saturn (even more so, considering their respective E3 disasters prior to launch).

[truegamerkt]

The x1 will never be the dreamcast, it was actually a good console.

[Concertoine]

I dont get this either. The losses on the first years of the Xbox and 360 were triple this number.

[ramiuk1]

ps4 recovered its costs didnt it already?

i expect most of MS R&D costs would be kinect 2 and cloud?
cant imagine it took much to think of the console itself because just like ps4,there simpler systems this time

[ThePope]

It takes years to recover R&D costs. Plus according to an article I read the cost is levied against the company the year the console launched. So it incurred a huge amount of debt on day one. I'm sure Sony is no different.

[xer0]

That's right.

Earlier articles on here, already confirmed that Sony has recovered it's costs already.

They are selling each PS4 with a profit. And that's without any price cuts. They've also reduced the cost in developing the console already. That was reported a few weeks ago.

[ramiuk1]

@xer0 i thought i was right dude,because im sure it said something about because they made costs back there gonna heavily invest in psn??
upgrading the network or something.

[ThePope]

Making a profit on the console and paying back the R&D budget are two very different things.

To make a profit on each console all that is for manufacturing costs to be less than the selling price. MS makes money on each console sold as well.

[Darrius Cole]

It's fine because it's not my money.

Nobody who loses 400 billion dollars of their own money is "perfectly fine" with it.

[GW212]

Million, not billion.

[badz149]

MS spent $500mil marketing the 1st Kinect. so, why any of you think that a $400mil is such a big deal to them?

[xer0]

A company that leaks a lot of cash, won't last long.

Apple learned this, and they are making huge profits, while Microsoft try to copy them.

MS has squandered money on all of the following, and lost a tonne of money:

- Windows Phone
- Surface/Tablets
- Xbox (as reported in this article)

Source: http://www.pcworld.com/arti...

They still have Windows and Office, but Windows isn't the huge cash cow it once was.

It's just a matter of time until the party is over.

[ATi_Elite]

Let me be really really clear when i say this!

$400m to Microsoft is NOTHING! to Nintendo and Sony those are huge numbers but to MS losing $400m is like me or you losing a handful of pennies!

Microsoft plays follow the leader and still rakes in $2b (b= BILLION) every 3 months.

No innovation, no leadership just do what the other guy does and pull in $2 Billion.

besides that $400m will be made up by EA Access, some Xblive titles for sale, and or Halo!

Kinect was already paid for so that extra $100 on Kinect XB1 sold was money in the bank for MS!

MS may do stupid things but they are not DUMB!

[PrinterMan]

I disagree. Microsoft is DUMB. The problem is many consumers are even DUMBER because the keep buying their crap. MS is a magnificent PR/Sales company. The old saying ...they could sell ice cubes to eskimos. One day all those 400 million dollar loses will catch up to them.

Just my opinion.

[aviator189]

Better than the billions lost over the rrod mess of the xbox 360.
I guess we'll have a better picture of xbox financial as the years progress.

[randomass171]

I wouldn't call it perfectly fine. That's a lot of money to not make back. But at least Microsoft seemed to have learned their lesson and will have greater focus on gamers.

[KonsoruMasuta]

It's not PERFECTLY fine but it isn't as bad as some people make it out to be.

I'm sure they predicted that they might have some losses when they launched their new peice of hardware.

[Ballsack]

Bet they didnt predict having to have a kinectless sku less than a year into its availability... They way it was touted that one cant work without the other by microsoft

Or

to be getting spanked in sales in its home territory

Ms need a new halo and fast ...that sucker will shift consoles

[Goku781]

Either start over with a better product and better customer service or leave the console buisness altogether.

[the_hitman3000]

Yeah I wouldn't say that's fine to lose all that money. However if that means more people will buy the Xbox without kenect then it's better then if they kept it.

I'm not a big Xbox fan but Microsoft is smart to not keep selling it with the system.

[stripe814]

its STUPID saying it is "perfectly fine" coz when MS loss that amount of money it shall result to cost cutting and what will be the result? job layoffs, sigh..happy with that?! jeezz quit doing article if you seem to be this stupid.

[Death]

For F!@#$ sake. I expect reading comprehension to suck here, but Forbes is another matter all together. From Microsoft's Earnings Release "Xbox Platform revenue increased $1.7 billion or 34%, due mainly to sales of Xbox One " http://www.microsoft.com/In...

Xbox Revenue increased by 1.7 billion, not increased to 1.7 billion. The 2.1 billion was the increase in cost of the 1.7 billion in revenue which left Xbox with 400 million less in Gross Margin. Surface which is the other part of the group had an increase in cost of revenue of 970 million. The division had a total increase of revenue of 3.2 billion combined which was offset by 3.2 billion in costs. The division had revenue of 9.6 billion and only 6.5 billion the year before. Gross Margin is 896 million compared to last years 956 million off of less revenue. Look at the f'n release for yourselves. The graphs are on the right.

I don't expect anyone here to be financial wizards but make informed statements by researching the facts and making educated deductions.

[rorytmeadows]

I'm excited for the wealth of comments about a business from people with no experience in business!

[OC_MurphysLaw]

Me a Financial Analyst? No ...but I did sleep at a Holiday Inn last night.

[GW212]

It really is rough around here when these finance articles come out. I have to laugh about it. I'm an ex-Wall St. banker who turned to the operations side a few years ago. Coming on here and listening to some of the statements are borderline insulting.

On topic: author is right to a point. I wouldn't say it's perfectly fine but it certainly is to be expected.

[Majin-vegeta]

It may be fine to us cuz it's not our money.But try asking board members if they're ok with that.And see their reaction.

[OpieWinston]

You ask that board member, and they'll be like "What are you talking about? The Computing and Gaming Hardware division made a profit in the last fiscal year...$893 Million to be exact, and had a 49% increase in overall revenue."

Investors and Board members will look at overall R&D costs and see the overall profits of their gaming division, Surface is making enough of a profit to cover Xbox One R&D costs. MS sees the brand as profitable now.
http://www.microsoft.com/In...

[Death]

Investors made a 10% return on their investment for the year. Gamers for what ever reason have absolutely no reading comprehension or math skills. http://www.microsoft.com/In...

The cliff notes are on the side...

[PhatGokuu]

Of all the companys microsoft is the only one that could handle it if ps4 had been a disaster sony might have gone bankrupt glad they came out swinging

[MasterCornholio]

As long as they can make it back I dont see where the problem is.

[system22]

this article pretty much sums up everything i was saying last week...

[Death]

Then you both are basing your opinions on bad information. The division that houses Xbox and Surface had a gross margin of 893 million. The Xbox had an INCREASE in revenue of 1.7 billion which brought revenue to 9.6 billion total and the cost of that INCREASED revenue was 2.1 billion which means the INCREASED revenue cost 400 million. Surface also had an increase in cost of revenue which is why the divisions Gross Margin was only 893 million on revenue of 9.6 billion. http://www.investopedia.com...

[Dread]

This is fairly normal and expected. most companies launch consoles at a loss. Its happened with the xbox, 360 and playstation 3.

What matters is that they make it up and profit in a few years.

[Rocky5]

Yeah the original Xbox never made any profit lol cracking system but due to MS slipping up on the nvidia contract they were losing cash on every Xbox sold, it's why they ditched it as soon as they could, it was like a bad wound that was constantly leaking. (As in leaking money)

Still have the original Xbox to this day, bloody brilliant machine.

Source: (it hard to find something so old)
http://www.geek.com/games/m...

[Predaking77]

And this is why Microsoft can afford another xbone price cut.

[hiawa23]

There is noway in hell Sony has made up in 8months the cost associated with the years it took to manufacture, ship, R&D for the PS4, especially given their massive financial issues with their overall company. I don't think it is good to loose any money but usually console manufactures take huge losses at the release of new hardware.

[Unarmed_Civilian]

Sony sed if PS4 owners buy a 1y PSN sub and 1 game (60$) with the console they covered the loss on the unit.

[TheUndertaker85]

They also went on to show statistically that most PS4 owners are doing that and more

[dcbronco]

They may be covering the cost of the unit. But that doesn't mean they have touched the other cost associated with launching a new machine. Don't get me wrong, this isn't like the PS3. But AMD didn't go from consistent loses to profits because Sony and Microsoft got amazing deals. But because of APUs Sony is likely to be making a profit on every console sold which in turn means they will pay off that debt very soon. Dealing with the debt from the rest of the company is the problem.

Off topic. It's actually weird to see Forbes write an actual business article with real facts in it again. I see you Forbes. Trying to be taken seriously again.

[Theyellowflash30]

This is the pure damage control.

[madjedi]

I love the irony.

[mrpsychoticstalker]

This is pocket change for Microsoft, they will get it back in no time.

[madjedi]

For ms's os and business software divisions, it's pocket change for the entertainment division almost a half a billion certainly is not no big deal.

[danny818]

this is really pocket change for them... even if they would lose on xbox its not a big deal. They will make good protfits off of xbox one. Starting this winter forsure!!! Halo MCC anyone?

[mcarsehat]

Don't they still make around 30+ Billion anyway?

[Corpser]

They didn't lose 400 million, they make 400 million less profit, big difference

[Master-H]

Thanks , Kinect R&D team..

[XStation]

They didn't "lose" $400,000,000...they made $400,000,000 less than the previous year.

[Death]

They made 63 million less than the previous year. Gross Margin last year was 956 million and this year it was 893 million.

http://www.microsoft.com/In...

It's in fricken black and white and people still refuse to believe it. Ignorance truly is bliss...

[horndog]

@ provoleno

http://www.joystiq.com/2009...

Here ya go buds. My bad. It was a long time since I last read that article bit I knew it was something stupid that sony lost. Not 9 but 4.7 Billions on ps. Now my point wasn't to trash the ps3 just an example to show that sony does take a loss as well. To me that 400 millions is peanuts compared to 4.7 billions wouldn't you say? So it's not as bad as some may think.

[SideNote]

And the millions that Sony got sued for this year about 1080p. Although strangely off topic here, bungie getting sued never made the big news.

[MultiConsoleGamer]

1. Forbes contributor piece.

2. They haven't lost $400 million. At least dualshockers.com realized their mistake when they first started this story. This was a false story created by our own Abriel, aka Guissepe Nelva.

[jts1891]

Honestly, who cares? Sony lost boatloads of money on the PS3 and they stayed in the game. Microsoft isn't going to drop out of the console market simply because of a bad launch. If they can keep the software flowing strong, they should be able to turn a profit in a few years, just like Sony did.

[rigo8582]

I think article is pretty spot on. Its much a do about nothing. Most companies take a loss when they launch a new product.

I think sony loss was around $2 Billion for the PS3, and they sold the PS3 at a loss at launch.

Microsoft is atleast making a profit on each xbox one sold. I think microsoft and xbox brand will be just fine.