Analyst: Microsoft Loses $2 Billion on Xbox Annually

November 8, 2013 - GamePolitics Staff

Nomura analyst Rick Sherlund says that Microsoft's losses on its Xbox business total $2 billion per year, but are masked or hidden by substantial cash generated from royalties on patents from Android-based devices.

"If we start with the overall traditional [Entertainment and Devices Division] business that actually loses money before corporate allocations and back out the nearly $2 billion 95 percent gross margin Android phone royalties, we conclude that Xbox platform plus Windows phone and Skype lose about $2.5 billion per year, and we estimate that the Xbox platform may account for roughly $2 billion of this," Sherlund said.

He goes on to say that this loss "is concealed by the hugely profitable Android royalties" that come out of licensing deals on Microsoft-held FRAND patents related to the Android OS.

Source: GII by way of The Escapist


Comments

Re: Analyst: Microsoft Loses $2 Billion on Xbox Annually

It sounds like the XBox division is basically an R&D lab with a revenue stream. If you look at the XBox division that way, and assume this analyst's numbers are right, then XBox is a very valuable part of Microsoft.

Re: Analyst: Microsoft Loses $2 Billion on Xbox Annually

Can you clarify this a little?  Is this from the 360 losing money, or because of the money being put toward the XBone?

Re: Analyst: Microsoft Loses $2 Billion on Xbox Annually

It sounds like this is a combination of the Xbox, Windows Phone, and Skype all just plain losing money - he implies this has just been an ongoing thing and the improvement and profitability of that division has entirely come from Android royalties, their actual products have been cash furnaces since they were created.

It's... plausible. I'm not sure I buy it, analysts are notoriously bad at this stuff, but it is plausible. Consoles are expensive to develop and manurefacture, and with so many games not being exclusive they need to sink huge money into promotion. All three makers (plus past ones like Sega) are not strangers to losing money on consoles in hopes of making it back on licensing. Sony's PS3 launch (mostly the costs before but also the slow start after) was enough to cancel out several other profitable divisions of the company, and Microsoft semi-admitted the original Xbox never actually turned a profit for them, but the 360 turnaround they made a big deal about in 2008 was too soon to have been entirely from the android royalties.

Re: Analyst: Microsoft Loses $2 Billion on Xbox Annually

I'm curious on that too. The amount of revenue that XBL alone brings in has to be staggering. Never mind the games and other content sold through their services.

 
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