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Rumour: Xbox division loses Microsoft mega money

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burningmoney

I think this is nonsense, but an analyst reckons that Microsoft’s Entertainment and Devices Division – the one responsible for Skype, Windows Phone and crucially, Xbox  -  is haemorrhaging money to the tune of $2.5 Billion a year. Importantly, Xbox itself is responsible for $2 billion of that loss.

How could this be? We’ve always been told that the Xbox was monumental profitable for Microsoft, especially when you factor in all those Xbox Live subscriptions and the ludicrous sums the company charges for Dashboard advertising.

According to Rick Sherlund, analyst with Nomura, That’s just not the case, and the only reason the division isn’t tanking completely is because its the same one that houses a ton of patents that are used in, of all things, Android. Those patents earn Microsoft over $2 Billion every year. 

Sherlund is a rather prominent Wall Street analyst and tends to know what he’s talking about – and he says that investors don’t see the trouble with Xbox, because they’re “concealed by the hugely profitable Android royalties."

If this is true, it makes sense as to why Microsoft seems to be focusing less on games with its new Xbox, and more on it being a trojan horse in to getting the console in to every living room. If E&D is losing that much money though, I’d say it has to do more with Surface than Xbox, and even if it is Xbox, it’s because of years of R&D on the Xbox One.

Last Updated: November 7, 2013

58 Comments

  1. Sageville

    November 7, 2013 at 14:10

    Also Windows Phone…. not the money spinner they hoped for.

    Reply

    • RinceandRepeat

      November 7, 2013 at 14:25

      Hey Sage, Debracreekmore12 agrees with you! I mean with Bella…

      Reply

      • Sageville

        November 7, 2013 at 15:04

        I wanna understand, I really do!

        I so fail.

        Reply

        • RinceandRepeat

          November 7, 2013 at 15:13

          Hehe. You had someone spam send you a message, and it was through the account Debracreekmore12. I think someone from LG has already removed it though 🙂

          Reply

          • Sageville

            November 7, 2013 at 15:19

            Those people! tsk-tsk!

    • Jim Lenoir (Banana Jim)

      November 7, 2013 at 14:30

      Don’t forget the Zune, now that was a profit killer.

      Reply

  2. UltimateNinjaPandaDudeGuy

    November 7, 2013 at 14:11

    Kind of sucks really… I always like competition in the market, but I can’t really say I am surprised.

    They have made some seriously stupid decisions and some PR nightmares have just been handled badly.

    Reply

    • Jim Lenoir (Banana Jim)

      November 7, 2013 at 14:31

      I’m hoping that SAMSUNG steps up and enters the gaming market. Something tells me that they’ll bring balance back to the force.

      Reply

      • RinceandRepeat

        November 7, 2013 at 14:32

        As in, more counter-lawsuits balance? 🙂

        Reply

        • Jim Lenoir (Banana Jim)

          November 7, 2013 at 14:37

          To their defence, Apple did fire first (a bit like Han Solo) and it’s been retconned to make them look bad, and to be honest, that was foul of Apple. Samsung should have gone for the jugular.

          Reply

          • RinceandRepeat

            November 7, 2013 at 14:37

            They are all as bad as each other if you ask me. Old Boys club syndrome.

          • Sageville

            November 7, 2013 at 14:56

            I think Samsung will always have the Ace in the hole over Apple.

            I mean all screens for all apple products are produced by Samsung.

          • Brian Murphy

            November 8, 2013 at 00:54

            Apple is as litigious as the American public. They’d patent electricity, the organization of the keyboard on a phone, and the freakin green call button if they could.

      • UltimateNinjaPandaDudeGuy

        November 7, 2013 at 15:01

        I am hoping the Steam Machine rights things in console land, but I would not mind Samsung going the way of the games. Would be very interesting to see what they come up with.

        Reply

  3. InsanityFlea

    November 7, 2013 at 14:13

    must’ve been all those RROD replacements hahaha

    Reply

    • Jim Lenoir (Banana Jim)

      November 8, 2013 at 06:44

      Or all those “timed exclusives”. If you think about it, Microsoft must have spent an insane amount of money for “timed exclusives” over the years. And where would Adam Sessler or Geis be without DORITOCRACY?

      Reply

  4. trueLies

    November 7, 2013 at 14:15

    xbox one only running at 720p
    gears of war and other exclusives coming over to playstation
    $100 more expensive
    40% down on power compared to PS4

    DEAD IN THE WATER

    Reply

    • ToshZA

      November 7, 2013 at 14:26

      True
      True
      True
      True

      False

      Reply

    • JHN

      November 7, 2013 at 14:29

      With regards to the 720P thing I read a couple reviews talking about COD ghosts and that yes the PS4 runs at 1080P but they noticed loads of frame rate issues. Which is pretty interesting.

      Reply

      • trueLies

        November 7, 2013 at 14:31

        That was damage control article by M$, what they didnt mention was:
        COD ghost also suffers from frame rate loss on the xbox one.

        Reply

        • JHN

          November 7, 2013 at 14:35

          Im not sure where it is damage control from MS the article that I read quoted IGN and other sites pointing out the issues.

          Reply

    • boet

      November 7, 2013 at 14:43

      But you forget one thing: Mircrosoft is one of the most profitable companies in the world, unlike Sony. The Xbone will be fine even if its not nr1.

      Reply

      • trueLies

        November 7, 2013 at 14:48

        have u not read the headline of the article u are commenting on?

        Reply

        • boet

          November 7, 2013 at 15:21

          ugh, you said ‘dead in the water’ and I said no the xb1 is not dead in the water because its backed by one of the riches companies on earth. Typical rude response from a asshole comments user.

          Reply

          • trueLies

            November 7, 2013 at 15:45

            I asked a legitimate question.

            No need to call me an asshole just because I pointed out the obvious 🙂

          • boet

            November 7, 2013 at 15:56

            ugh whatever, its obviously pointless trying to communicate with you.

          • trueLies

            November 7, 2013 at 16:04

            shhh know your place

    • Sageville

      November 7, 2013 at 15:00

      Human sacrifice!
      Dogs and cats, living together!
      Mass hysteria!!

      (+1 Sagepoint if you know where that is from)

      Reply

  5. Alien Emperor Trevor

    November 7, 2013 at 14:16

    If those numbers are true that’s some serious cash being lost & I’d expect to see heads rolling.

    Reply

    • RinceandRepeat

      November 7, 2013 at 14:24

      Agreed. I can see a tiny element of truth as being potentially real, but nothing to this extent. I mean, Major Nelson would tell us, right?

      Reply

      • Alien Emperor Trevor

        November 7, 2013 at 14:30

        This is what happens when you let go of Don Mattrick – it all goes for a loop. Look how well Zynga is going now.. oh, wait…

        Reply

        • RinceandRepeat

          November 7, 2013 at 14:36

          yeah look at how… Hell..

          Reply

        • Jim Lenoir (Banana Jim)

          November 7, 2013 at 14:38

          I think the Jacket failed Don… 🙁

          Reply

      • Jim Lenoir (Banana Jim)

        November 7, 2013 at 14:34

        lol, no Major Nelson is a saintly character, he would never lie. He’s like a young George Washington and we’re the cherry tree 😛 hehehehe

        Reply

        • RinceandRepeat

          November 7, 2013 at 14:36

          Exactly man! Major Nelson FTW!

          Reply

          • Jim Lenoir (Banana Jim)

            November 7, 2013 at 14:37

            Sarcasm detector is failing… 😮 Can’t tell if serious 😛

          • RinceandRepeat

            November 7, 2013 at 15:34

            Hey, my love for Nelson is probably still more real than you! *Runs

  6. RinceandRepeat

    November 7, 2013 at 14:19

    But what about the huge success of Windows 8? There is no way this can be true. I call SONY’s spies in the camp Bullshit! Foxhound, where are you to back me up when I need you!?

    Reply

  7. Sir Rants-a-Lot Llew

    November 7, 2013 at 14:20

    Well this is what happens when you use free to play. You constantly have to buy more stuff with real life cash just to progress. Forever making you more poor with a fake sense of achievement.
    #trollol

    Reply

  8. Johan Fourie

    November 7, 2013 at 14:21

    Maybe it’s the universe shooting back at MS for their patent trolling. Next in line is Apple and Rockstar (not the Rockstar that made GTA).

    Reply

  9. Jim Lenoir (Banana Jim)

    November 7, 2013 at 14:30

    This isn’t the first time I heard this rumour, but I always suspected that the xbox section was in the green while their mobile venture was dragging the division down.

    But, if it’s true, it does validate the claim that the Microsoft’s investors have been fighting tooth and nail to get the xbox division shutdown. I never understood why investors would have been so against it if it was in the green. It makes a lot more sense if it’s actually haemorrhaging money.

    With the bone boning itself, and investors screaming bloody murder, this coming gen might just be Microsoft’s last foray – I for one won’t be too perturbed if they were out of the hardware race. Some of the worst aspects of gaming can be blamed on them – seriously… a pay-wall to play online? FUCK OFF! And now, it’s standard. Thanks Microshit!

    Reply

    • Johan Fourie

      November 7, 2013 at 14:37

      What I’d like to know what exactly from the Xbox division is costing them money? Are they undercutting the price of the console so much that it hurts them? Are sales just dwindling? It’s quite vague, but so are most rumors.

      Sad though, I’m a PC bloke, but I do enjoy consoles as well. Would be sad to lose one in the console race.

      Reply

      • Jim Lenoir (Banana Jim)

        November 7, 2013 at 14:41

        Yeah, I always think back at how SEGA bowed out, but it did allow Microsoft a chance at becoming a hardware giant. Similarly, if Microsoft were to bow out, that space will be filled by someone else, and who knows maybe some new blood is just what we need.

        But I still think Microsoft’s tenure into gaming has been predominately negative, and I might be too harsh on them, but there’s just a long list of shit that they’ve been responsible for that will be with us for decades to come.

        Reply

        • Johan Fourie

          November 7, 2013 at 14:42

          True that, someone else will always step in “cough Steambox, cough” but it’s still sad to see such an epic piece of gaming joy just die because of mismanagement and what not. Oh well, such is the world of tech.

          Reply

          • Jim Lenoir (Banana Jim)

            November 7, 2013 at 14:44

            Valve’s focus has always been games, and I’m definitely keen to see what they can do for us. In other words, I’m cautiously optimistic.

      • Alien Emperor Trevor

        November 7, 2013 at 14:46

        The only thing really unique to their console is the Kinect. I’d bet on R&D & manufacturing costs for that if the rumours are true.

        Reply

    • Foxy

      November 8, 2013 at 07:33

      I can’t see how this can be true. Investors get what they want, they would have scrapped it if it was causing losses. Add to that as you say prominent board members? They would have let go of it a long time ago if they wanted to. I can’t see a big company like that keeping a product line that is a liability, especially not if capital pushers as well as the board wants it gone. They are a public company, I urge you to look at their earnings and then read what you wrote again.
      And what if it was making a loss? We all seem to forget what Sony’s earnings look like and which departments of theirs is the one bringing in the money.
      Did it stop them from creating an awesome product? No.
      There’s also the Americans who will keep the Xbox alive.
      The Xbox won’t go anywhere. If Microsoft were to scrap probably its second most famous brand, it will cause way too much damage. For a public company that is too big a risk.
      We will go on to see GOW 55 on the Xbox.
      Pay-wall to play online? Sony did not have to do the same. FUCK THEM TOO!

      Reply

      • SynGamer

        December 18, 2013 at 00:59

        Investors do not always get what they want. If you have a jack ass CEO with 51% the company does what the CEO wants. Investors can threaten to pull money but they wont. They have mostly had stock in the company along time and to pull out after the jack ass CEO has made some dumb ass mistake that causes the stock to go down would mean they would not get the money they put in back, so instead they bitch and complain but continue to bed over and in some cases throw more money at the problem hoping it will go away and they can start earning again. Microsoft’s plan is to continue to spend money shoving useless garbage down our throats, paying companies for exclusives and fist dibs on DLC until they get a box in every home by bruit force. What really sucks is every time XBox is doing crappy pc gaming takes a hit. its like Microsoft sees all these pc gamers not on xbox and thingks “how can we make windows suck even more to drive them from their PCs?”

        Reply

  10. Hammersteyn

    November 7, 2013 at 14:57

    I forgot about the dashboard adds. My word the only way this is possibly a better online experience than PS is if you can stick your d in the xbox while online.

    Reply

    • Sageville

      November 7, 2013 at 15:06

      NEVER DO THAT!

      Although it’s nice and warm, there is NO happy ending!

      Er… apparently I read that somewhere.

      Reply

      • Hammersteyn

        November 7, 2013 at 15:15

        Bwahahaha

        Reply

  11. CypherGate

    November 7, 2013 at 15:06

    Simply put… If Microsoft was making huge losses and not making any profit whatsoever then they wouldnt be spending so much money in the console industry as well as gaming exclusives etc etc No big business would invest loads of money into something thats creating huge losses. Thats how i understand it.

    Reply

  12. Deano

    November 7, 2013 at 15:24

    Can’t belive this, Xbox live alone must be netting MS mega bucks!
    plus the amount of consoles and game licenses = $$$

    Im calling BS on this.

    Reply

    • Tarisma

      November 7, 2013 at 15:32

      Me two, if xbox is hemorrhaging wouldn’t Sony be too?

      Reply

      • HvR

        November 7, 2013 at 15:59

        Sony have said they’ve lost money on the PS3.

        Only started selling it for more than the component/manufacturing cost beginning 2010 and only started making a profit on the units (this now includes logistics) end 2010.

        Taking interest of R&D and loss of the first x million units into account it was a net loss.

        Addition: The first units they were selling at at a bill of materiel loss of $250

        Reply

  13. cr1t

    November 7, 2013 at 16:35

    Would not make sense, considering they see them selves growing more into hardware and services direction. Agreed the surface tablet is a loss.

    Reply

  14. trueLies

    November 8, 2013 at 08:31

    Me too! Im calling BS

    I mean there is no way M$ could ever loose money and when a journo’s first sentence in the article is “I think this is nonsense”.

    M$ doing damage control, negative articles will only be allowed to be written after xbox has lanched and fucted over all the pre-order noobs. People in the comments al over are asking why are all gaming sites scared to piss of M$.

    Every single article they try and play down the issues and always use the mantra “lets wait and see” which is code for please buy our console and dont question all this crap that is going on.

    Just wait and see if we where lying 😛

    Reply

  15. CJsBigfootFactory

    March 9, 2016 at 00:01

    Amazing how many people actually BELIEVE THIS B.S. So the international criminal network known as Microsoft (One of the “big 3” console makers… just like the “big 3” auto makers) just can’t seem to turn a profit. LOL. Can ANYONE turn a profit around tax time? Of course not!

    This is the THIRD console they can’t make money on… seems like they would have learned their lesson the first two times, right? Sure.

    It’s a glorified desktop PC that started out at $500… and they’re selling them like chocolate chip cookies. Of course that’s not counting extra controllers and games (which are, believe it or not… really just DVD’s that cost pennies to make, if you’ve ever seen a game before). When a company like Microsoft puts in an order for say 20 million HD’s from China, they’re literally buying them for a few pennies over cost. $1 x 20 million is a nice $20 mil for a company. Imagine how hard it would be for a CEO to make a backroom deal with Mr. Chinese factory owner and CLAIM that their $1 part would $11 dollars to make.

    I’m sure Mr. Chinese factory owner wouldn’t want a huge cut of 200 MILLION US dollars to keep his mouth shut because it would be dishonest… If you believe that, keep looking for that Bigfoot in GTA San Andreas.

    Simple math, common sense and deductive reasoning lead me to believe that MICROSOFT IS MAKING A KILLING ON THEIR OVERPRICED XBOX ONE. Just like they did on the original xbox and on the 360. In the corporate world, the “bottom line” is all that matters. If a company “loses” money THREE times around, there is some serious crime happening in the back room.

    The bigger a lie, the easier it is to believe. What, did you really think the cops were going to be out to unkie Bill’s house to arrest him for violating antitrust laws and taking part in money laundering, larceny and long lists of felony criminal practices?

    They’re going to put him in the drunk tank with Bigfoot.

    Reply

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