14 DAY TRIAL // In the wake of Microsoft's release of the annual report for the fiscal year 2006, details have surfaced casting a shadow on the market performance of the Xbox 360 product. In the all out war with rival console builder Sony, Microsoft has proven that it is prepaired to cut into its own flesh in order to gain the terrain that separated it from its Japanese competitor. In this context, while hitting the 5 million sold units milestone just seven months after the launch of the Xbox 360, with no less than 1.8 million products shipping just in the last quarter, Microsoft's Home and Entertainment Division posted record losses related directly to the performance of its console.
With 5 million Xbox 360 sold worldwide, Home and Entertainment's operating loss also gained momentum and hit an apex of $414 million for the last quarter of the FY06. This was accompanied by a revenue growth of no less than 129%, or $503 million dollars. "Home and Entertainment operating loss increased primarily as a result of a $682 million increase in cost of revenue primarily associated with the Xbox 360, partially offset by the revenue growth," stated Microsoft representatives.
A global analysis of the Home and Entertainment Division market performance in FY06 reveals an increase in operating loss by 160%, totaling at $1.26 billion. "Home and Entertainment operating loss increased primarily as a result of a $1.64 billion increase in cost of revenue primarily as a result of the number of Xbox 360 consoles sold and higher Xbox 360 unit costs, partially offset by the revenue growth," said Microsoft. "Our fiscal year 2006 operating loss increase was also attributable to the significant impact of Halo 2 in fiscal year 2005. Our business model anticipates that while we currently sell Xbox 360 consoles at a negative margin, product cost reductions and the future margins on sales of games and other products will enable us to achieve a positive margin over the Xbox 360 console lifecycle."
If Microsoft will continue to navigate the current financial trajectory with its Xbox 360 console, losses are bound to triple, as CFO Chris Liddell revealed the Redmond Company's plans to sell 15 million consoles by the end of fiscal year 2007. Sony is also expected to report an $870.6 million loss on its PlayStation 3.