Microsoft's Q2 Earnings Soar On Halo 2

Microsoft Corp. has reported its fiscal results for the second fiscal quarter of 2004 (October-December 2004), with reported earnings of more than twice the company's predictions for the sales quarter, a total of $3.46 billion. The company accounted for this unexpectedly good performance by specifically mentioning both high sales of server software and similarly top sell-through for the Xbox game Halo 2. The high earnings make this the first fiscal quarter in the history of Microsoft's Xbox-containing home and entertainment division in which that sector of the company has turned a profit, as it posted a profit of $84 million for the three-month period. Microsoft's strategy since the first days of the Xbox has been to invest whatever amount is necessary to establish a long-term profit center in home entertainment, and it now seems to be paying off, with strong sales of Halo 2 and the Xbox Live service. According to recent figures, the total number of Xbox Live members has exceeded 1.4 million world-wide, and 6.4 million copies of Halo 2 have now been sold world-wide, with 4.4 million being sold in the U.S. alone. Despite the good news for the Xbox division, Microsoft's Chief Financial Officer John Connor cautioned that losses would soon be in store again for the home and entertainment group, and that a regular profit would be unlikely until late 2006. Given that Microsoft would have difficulty launching another game with Halo 2's popularity in the near future, as well as persistent rumors that the coming months will see the beginning of a campaign to launch a new hardware platform, the reasons for another few quarters of fiscal losses become clear.