Microsoft Loses Money on Xbox

Losses at Microsoft's Home and Entertainment division, which includes the Xbox game console, nearly doubled in the last three months of 2002, the company has disclosed in a regulatory filing.

The division, which also includes Microsoft's TV platform and PC games, posted a quarterly operating loss of $348 million, compared with $180 million in the same period a year ago. The information is revealed in a filing with the U.S. Securities and Exchange Commission for its second fiscal quarter.

Sales Jump

The loss grew as the Xbox became available around the world, driving up the division's revenue from $833 million to $1.28 billion. In the video game console industry vendors typically lose money on each console they sell, but try to earn that back when selling games, accessories, and services.

Microsoft and other game console vendors have sought to drum up revenue with the online multiplayer gaming services launched in the past year.

Microsoft announced its second quarter results on January 16, but at that time did not detail operating profit and loss for each group or division.

Home and Entertainment recorded the largest operating loss of any division. Microsoft Business Solutions, which includes Great Plains, BCentral, and Navision, reported the largest jump in operating loss, from $41 million in the final three months of 2001 to $93 million in 2002. Microsoft acquired Navision last year. It has implemented into its own line some of the products gained in the acquisition.

Big Winner: Windows

Four of Microsoft's seven divisions posted an operating loss in the last months of 2002. The MSN Internet group, which offers Internet access and online services, and CE/Mobility, which includes handheld computing software, complete the list of loss-making company parts.

The Client segment, the Windows operating system part of Microsoft, continues to generate the most profit for the company, with $1.97 billion in operating income on revenue of $2.44 billion in the December quarter of 2002. This was down from income of $2.11 billion and revenue of $2.68 billion the same period a year earlier.

The Information Worker segment, which includes the Office products, is a close second when it comes to profit making. Operating profit here rose to $1.88 billion on $2.41 billion in revenue, up from $1.74 billion income and $2.2 billion in revenue a year earlier.

Operating profit at the Server Platforms part of Microsoft also increased in the last quarter of 2002, to $498 million from $402 million a year ago, with revenue up from $1.44 billion to $1.67 billion.

Microsoft also disclosed in the filing that it paid $200 million for PlaceWare, a privately held company that provides Web conferencing services for businesses. Financial terms were not disclosed when the deal was announced in January.