The losses Microsoft incurred during the second quarter of the fiscal year had nothing to do with sales or lacking demand of their products in the entertainment division. Instead, the losses have stemmed from a rather unfashionable rise in Xbox 360 console replacements and repairs.
Any gamer who has been keeping track of the constant claim of 360's shutting down, burning up and crashing, you'd have to wonder how well that fairs for Microsoft's profits. Well, it doesn't fair well for their profits. That's why they lost $289 million dollars in expenses for replacements and repairs for the Xbox 360.