Microsoft's Xbox Hole Just Got $1 Billion Deeper

from the any-day-now dept

Thu, Jul 5th 2007 4:02pm — Joseph Weisenthal

Microsoft's Xbox unit has yet to turn a profit, but the company keeps insisting that profitability is just around the corner. That goal may have to wait a little bit longer, as the company has announced that it will take a $1.05-$1.15 Billion charge to cover certain manufacturing defects and the cost of giving consumers an extended warranty. The company is, of course, used to fixing products after they've been released, but repairing a manufacturing defect isn't quite as easy as pushing out a patch to cover a software bug. The company still claims that it the Xbox unit will hit its goal of achieving profitability by 2008, although it's hard to put much faith in that promise. Manufacturing issues notwithstanding, the broader industry picture is probably not how Microsoft imagined it when it first threw its hat into the ring. Far from achieving a comfortable duopoly with Sony, the two companies have badly bloodied themselves, while an unexpectedly resurgent Nintendo not only grabs significant market share, but makes money while doing it.

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26 Comments

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rspar, 5 Jul 2007 @ 4:18pm

xbox hole
Maybe if they hadn't pretty much dumped the original xbox they would still be making money on that. I have to order knock off controllers because they don't make them anymore.
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Sohrab, 5 Jul 2007 @ 4:40pm

I myself am 3 Xbox 360's into this thing and I know almost all of my friends are in their second unit. Makes me think of an earlier report that almost 30%, if not higher of the 360's have been returned and this makes me think, if their goal is 12 million by 2007? Isnt atleast 3 million of those units for people who had to buy them all over?
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Jobeesh, 5 Jul 2007 @ 4:50pm

Not the whole story
While nobody will argue that the PS3 will be profitable for at least a few years, the 360 and Wii profitability comparison goes much deeper than the sales of a console. Console profitability is about revenue attach rate which means, while the console may lose money, the games and accessories are all revenue and how much revenue, on average, each console makes is the revenue attach rate. This makes comparing the Wii and 360's "money making" much more difficult to judge. Between controllers, xbox live subscriptions, downloadable games and videos, and other content, both the 360 and the Wii are making money in many different places.
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- Anonymous Coward, 5 Jul 2007 @ 5:18pm
  
  Re: Not the whole story
  Are you suggesting that the PS3 will not have a "revenue attach rate"?
  Would it be safe to assume that game/accessory/etc profits will play an equal roll for each console?
  
  I guess I fail to understand what your getting at here.
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- Vernon Jettlund, 5 Jul 2007 @ 5:25pm
  
  Re: Not the whole story
  While true, you cannot discount Nintendo's "attach revenue" because the system makes money on ALL sales - consoles, games, controllers, all of it. It also has a subscription service, and the popular card - it is "the thing", and is not haunted by the same issues its competion can't seem to shake off.
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- I have sony stock and i can't go to sleep, 5 Jul 2007 @ 6:28pm
  
  Re: Not the whole story
  Wait are you saying that PS3 doesn't have any complimentary products? what are you talking about? All consoles are sold at a loss. well okay, i'm not 100% sure about the Wii but then again, they practiced the destruction model to blow the other competition out of the water and they've succeeded. Now its all about sustaining the console with quality games. Nintendo, Sony and windows are looking to make up the loss of selling each console with the sales of accessories, games and licensing. get your facts straight.
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  - Anonymous Coward, 5 Jul 2007 @ 7:51pm
    
    Re: Re: Not the whole story
    The wii is sold at a profit.
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Chronno S. Trigger, 5 Jul 2007 @ 5:21pm

I'm on my second
so is the only other person I know of who has a 360.

"cost of giving consumers an extended warranty"

Douse this mean I'm getting another year of warranty?
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- Mr. Vage, 6 Jul 2007 @ 7:09am
  
  Re: I'm on my second
  It's been extended to 3 years from the date of purchase.
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Homer Simpson, 5 Jul 2007 @ 5:25pm

Extended warranty! How can I lose?!?!
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Anonymous Coward, 5 Jul 2007 @ 8:10pm

that is why i like the pc game market. no console wars no vendor lockin. just what company can publish the best softare(games) to win over my intrest. yeah i know pc games hardware isn't as complex as consoles because you have to run an OS on top of it rather than the striped down OS of game consoles but still I would much prefer them expand into this market way more. mainly cause i can play them on my laptop virtually anywhere anytime not restricted to being in front of my tv. just my two cents.
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- Christina, 5 Jul 2007 @ 8:53pm
  
  Re: Anonymous Coward
  "no console wars": PC with Windows versus PC with Linux versus Mac, and all the accompanying legal battles and FUD, sound familiar?
  
  "no vendor lockin": So if I buy a Mac or install Linux I can still totally run all the new games, right?
  
  Also, PC hardware is more, not less, complex to write for, because it's less predictable: There are dozens (at least!) of different graphics card/sound card/processor/memory combinations that any given PC gamer might be running, and that's just hardware compatibility.
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  - ehrichweiss, 6 Jul 2007 @ 7:11am
    
    Re: Re: Anonymous Coward
    "Also, PC hardware is more, not less, complex to write for, because it's less predictable: There are dozens (at least!) of different graphics card/sound card/processor/memory combinations that any given PC gamer might be running, and that's just hardware compatibility."
    
    So I guess all that OpenGL and DirectX stuff is useless then, huh? You're talking about drivers, not game programming. There's this thing, in almost every operating system, called hardware abstraction. It makes it so that we don't have to program the interrupts, etc. when writing to a hard drive, or reading the keyboard/mouse.
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    - Anonymous Coward, 6 Jul 2007 @ 9:40am
      
      Re: Re: Re: Anonymous Coward
      So thats why Oblivion crashes on some computers and not others. Plus I had to upgrade my video card to one listed as a compatible video card.
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Shalkar, 5 Jul 2007 @ 9:00pm

The Breakdown
The PS3 console in all forms is a lose when they sell it. They have to make up the money on sells of everything else for it. The Xbox 360 and the Wii consoels both make profit when the sell. The Xbox 360 console makes a minimal profit of about $36. Nothing really big considering the overall cost. The Wii console makes a bit more money off of sells.

Overall though, the big money for them is in things like accessories and games. Without those two, there wouldn't really be any money. Until this current generation, no console was sold for a profit. Even now though, it's really just a minimal profit.

As for, "Does this mean I get another year on my warranty?": Yes. From the date of purchase you have three years. Albight, to be honest I'm not sure if it's three years from the date of purchase or the date of manufacture. Probably the latter. Just to be safe. ;P
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Anonymous Coward, 5 Jul 2007 @ 9:05pm

So if I buy a Mac or install Linux I can still totally run all the new games, right?
Sure, just reboot into Windows.

There are dozens (at least!) of different graphics card/sound card/processor/memory combinations that any given PC gamer might be running, and that's just hardware compatibility.
Game programmers haven't had to code for specific hardware since the days of DOS. Modern Windows systems have what is called a hardware abstraction layer that programmers code to. Look up Direct X.
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- Anonymous Coward, 6 Jul 2007 @ 9:39am
  
  Re:
  >>Game programmers haven't had to code for specific hardware since the days of DOS. Modern Windows systems have what is called a hardware abstraction layer that programmers code to. Look up Direct X.
  
  Yea, look up video card compatibilities for new games. the list doesn't exist for no reason.
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Doug Robb, 5 Jul 2007 @ 9:24pm

Xbox is a strategic market play not a Games Conso
I think to look at the Xbox as a games console alone is a mistake. Microsoft - like Apple - can leverage their existing enterprises onto the emerging media/Internet/Phone/Video/Advertising convergence. The Xbox as a wireles media centre and hub for various on-line services is a model that may position them to far greater riches than worrying about recovering the cost of a box!

Just think of the identity management side alone and see the leverage there. Because it's already connected to your home theatre or whatever this is a far better fit to the consumer market than any PC alternative. A door to every lounge room - you don't have to think too hard about what this will be worth to any company!

Like the phone company's give away the hardware and make money from the services.
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- Anonymous Coward, 6 Jul 2007 @ 9:43am
  
  Re: Xbox is a strategic market play not a Games C
  yea, well, ps3 is set up to do all that too.
  
  all the structures aren't in place yet, but the foundation is.
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  - Anonymous Coward, 6 Jul 2007 @ 9:45am
    
    Re: Re: Xbox is a strategic market play not a Gam
    in fact, the ps3 does have the blu-ray player, so that puts it one step ahead in the media market.
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yossi, 5 Jul 2007 @ 11:19pm

it
i think there is a rouge 'it' in the article somewhere
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- Anonymous Coward, 6 Jul 2007 @ 9:44am
  
  Re: it
  i think you misspelled rogue.
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Brice Smith, 6 Jul 2007 @ 3:38am

hmmm..... kinda reminds me of windows vista flawed from the start
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Buzz, 6 Jul 2007 @ 1:11pm

Aru?
XBox sells at a profit? I didn't know that. I thought they lost $100 or something like that. My bad. I knew Sony lost like $300 per console. Who wants to go through the nightmare of recovering losses? Nintendo profits on everything!
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Phil, 6 Jul 2007 @ 2:48pm

XBox
Good. About time Microsoft starts losing money on something. It's fun to see a monopolistic OS menace get it's comeupance, after the agressive zeal they have gone through in the past trying to eliminate the competition.
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matt, 9 Jul 2007 @ 11:23am

360 works great
I think I got mine a year and a half ago? Never a single prob w/ it. Plus I got the extended warranty so now I have an extended extended warranty :)
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