Microsoft Slumps In Third Quarter As Xbox 360 Sales Swell

Increased Xbox 360 and PC revenue couldn't keep Microsoft's Entertainment and Devices Division from reporting operating losses of $31 million during fiscal Q3, a year-on-year decrease from $106 million in operating income. Microsoft attributed the decline to increased R&D. However, the company's game-related revenue was up 16 percent year on year, largely thanks to more Xbox 360 console sales -- 1.7 million in the quarter ending March 31st, 2009, to be exact. The firm did note the "decreased revenue per Xbox 360 console", thanks to hardware price reductions in the last 12 months. During the fiscal third quarter in 2008, Microsoft sold 1.3 million Xbox 360s. Revenue in the Entertainment and Devices Division was flat year-on-year at $1.57 billion for the quarter. Sales were down slightly for the nine month period in the division to $6.56 billion. The Entertainment and Devices Division includes not only the Xbox 360, its games, Xbox Live and accessories, but also the Zune platform, PC software online game and services, Microsoft's Mediaroom Internet protocol television software, the Surface platform and other devices. The division's overall loss, according to Microsoft, was largely attributable to a 63 percent decline in sales for Apple platform software. The nine month picture for the Entertainment and Devices Division is slightly different -- in this larger view, Xbox 360 and PC game revenue fell $51 million or 1 percent. Earlier in the nine-month period, the unit sales boost motivated by the price cut hadn't yet offset the loss in revenue from the reduced price. Nonetheless, Microsoft says it shipped 10 million Xbox 360 consoles in those nine months of fiscal 2009 versus 7.5 million for those same 9 months in 2008, an impressive boost. Overall for Microsoft, declining PC hardware sales harmed the company, as Microsoft reported a 32 percent fall in profit to $2.98 billion for the quarter, and saw its first-ever year on year revenue decrease -- down 6% to $13.65 billion. [UPDATE: In slides shown alongside Microsoft's earnings call, the company revealed that, according to its own calculations, game and accessory attach rates for the Xbox 360 have increased to 8.3 and 3.9, respectively.]