January 26, 2006 1:33 PM PST

Xbox shortage dings Microsoft sales

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Microsoft earnings present a mixed bag

October 27, 2005
Microsoft on Thursday reported second-quarter earnings in line with Wall Street estimates, but revenue came in slightly less than expected amid component shortages for the Xbox 360.

The software maker said it earned $3.65 billion, or 34 cents per share, on revenue of $11.83 billion, for the three months ended Dec. 31. Earnings were boosted by a tax benefit that amounted to about a penny per share. That compares with earnings of $3.46 billion, or 32 cents per share, on revenue of $10.82 billion for the same quarter a year ago.

Listen up

In an earnings conference call Thursday, Scott Di Valerio, Microsoft's outgoing chief accounting officer, says sales of the game console were hindered by a dearth of components.
Listen now... (626KB mp3)

Analysts had anticipated earnings of 33 cents per share on revenue of $11.96 billion, according to First Call. Microsoft said in October to expect revenue of $11.9 billion to $12 billion and per-share earnings of 32 cents or 33 cents.

Shares in the company rose slightly in after-hours trading, changing hands recently at $26.93, up 43 cents, or 1.6 percent from Thursday's closing price.

Microsoft said it saw strong PC demand during the quarter.

The company blamed the revenue miss on component shortages for the Xbox 360, which launched during the quarter. MSN also came in slightly below expectations, though results for the company's server and tools unit were better than expected. The Windows client unit and the Office business largely met expectations.

"Overall revenue did come in slightly below expectations, mostly driven by our home and entertainment unit," said Colleen Healy, a senior director at Microsoft. "We did have some component shortage issues that we believe are behind us."

Microsoft said it sold 1.5 million Xbox consoles during the holiday quarter: 900,000 in North America; 500,000 in Europe, the Middle East and Africa; and 100,000 in Japan.

"This was lower than we expected due to component shortage," Chief Accounting Officer Scott Di Valerio said on a conference call with analysts. "We believe this is a short-term manufacturing challenge."

Listen up

Di Valerio sums up the software maker's performance and results for the first half of its fiscal year 2006.
Listen now... (947KB mp3)

Microsoft also cut its forecast for Xbox 360 sales over the first 90 days. The company had hoped to sell as many as 3 million consoles over that time, but now expects just 2.5 million units, due to capacity constraints. Microsoft said it still expects to sell 4.5 million to 5.5 million of the game consoles by June.

The software giant also saw profitability, for the first time, in two of its emerging business units. "For the first time ever, the Microsoft Business Solutions and Mobile and Embedded were in the black," Healy said.

The business solutions unit, which sells business software for midsize companies, earned $10 million in operating income, while the mobile unit posted a $20 million operating profit.

Microsoft slightly raised its sales forecast for the full year, saying it now sees 11 percent to 12 percent growth, compared with an early forecast of 10 percent to 12 percent growth. "We're feeling better about our top-line growth," Healy said.

The company also had its biggest ever quarter for share repurchases, buying back more than $7.7 billion in stock. As a result, Microsoft saw a dip in its cash balance. The cash and short-term securities balance ended the quarter at $34.7 billion, down from $37.8 billion at the end of June.

For the current quarter, Microsoft said it sees things generally in line with analysts' forecasts. The software maker expects projected revenue of $10.9 billion to $11.2 billion, with per-share earnings of 32 cents or 33 cents. Analysts have been looking for per-share earnings of 33 cents and revenue of $10.99 billion.

14 comments

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Miss
Miss revenue, beat earnings not a bad thing I would say
Let's see how SQL server 2005 will contribute to the next quarter

<a class="jive-link-external" href="http://sqlservercode.blogspot.com/" target="_newWindow">http://sqlservercode.blogspot.com/</a>
Posted by SqlserverCode (165 comments )
Reply Link Flag
Profit? is that what they call it?
Let's see, if you were the only car dealer in the USA and you sold a couple of different models, You set the price, you say who can sell your cars and for how much. You do allow imports but there are no mechanics so if you can't work on your own car the imports aren't any good.
Would it be profit or stealing?
Also another addition, the car's you sell are such garbage that they barely run but hey, no one has a choice so too bad. If you couldn't make a huge profit you would have to be really really dumb.
But theres no doubting the dumbness of the "Redmond Retards"
Posted by nothingavailable (53 comments )
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Sounds like
somebody's glass is half empty.
Posted by Charleston Charge (362 comments )
Link Flag
No one forces you. Buy Mac or use Linux
No one is forcing you to buy it. Why don't you buy a Mac or run Linux, or whatever?

There is NOT one operating system out there. There are many.

Microsoft's prices are a lot cheaper than others... Can you buy Mac OS without also buying hardware? No. Mac hardware costs a lot more. They have a monopoly too but no one is screaming because the majority CHOOSE Microsoft to SAVE money.

You just hate it that someone else makes more than you.

If this was any other (e.g. .com) company their stock would be at $2,000 after rakining in nearly 12 BILLION. AND making a profit.

Lets consider: Microsoft makes more in NET INCOME (Revenue-Costs) than Goggle has in total sales! Yet Google is currently trading at HALF the value of Microsoft.
Posted by Anon-Y-mous (124 comments )
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Are you talking about Ford
Are you talking about Ford?
Posted by SqlserverCode (165 comments )
Link Flag
get over it...
get a life or at least a hobby instead of retreading tired old anti-microsoft talking points. yes, they made money...&lt;yawn&gt;
Posted by tlite722 (160 comments )
Link Flag
YSATI
Potentially the most ignorant comment I've read here. Please, step away from the computer. YSATI.com
Posted by PerfectCr (17 comments )
Link Flag
Apple vs MS in billions
MS is naturally making a much larger profit but has only a
revenue of $11.83 billion, Apple sold $5.75 billion last quarter.
Thats about 50% of MS sales, just amazing! Apple isn't that small
and MS isn't that big at all.

MS loses a lot of money on 'growth' markets like MSN, Xbox and
Explorer but it can do this via the uber profitable Office and
Windows software where they make a 3-400% net profit. These
figures are almost criminal and just won't last, it can't. One
cheap, easy and good enough office replacement can kill off MS
entirely. :D
Posted by Peter Bonte (316 comments )
Reply Link Flag
Apple vs MS in Billions....lol, no contest
Peter Bonte said, "MS is naturally making a much larger profit but has only a revenue of $11.83 billion, Apple sold $5.75 billion last quarter. Thats about 50% of MS sales, just amazing!"

Actually, if you think about it for more than 3 seconds and take things into persepctive you'll quickly realize it's not amazing at all. For years and years and years, Apple was a horribly mis-managed company, bleeding &#38; losing money along with market share. Its only a very recent turn of events that Apple managed to become less of a joke and pull a profit and while the ipod's market share is impressive, OS X's market share is still a joke and virtually non existant in the world desktop market...by some calculations even behind Linux on the desktop side.

On the same token, in all of those years Apple was losing money, Microsoft was making it hand over fist, the amount of money Microsoft and success stories Microsoft has made over the years is nothing short of absolutely amazing...it's incredible.


Peter Bonte also says, "MS loses a lot of money on 'growth' markets like MSN, Xbox..."

You're right, they do lose money (now anyway) but they're really long term investments in the future. I'm sure everyone in the world realizes this. Losing a billion or two over the course of a few years now is small chump change to Microsoft when the potential profits from things like Xbox, Xbox 360, and Xbox Live reach the slated 10's of billions dollars in as little as 5 - 10 years.

Finally, Peter Bonte says, "These figures are almost criminal and just won't last, it can't. One cheap, easy and good enough office replacement can kill off MS "

LOL...certainly the funniest statement in this post. Microsoft has been making these figures for what, nearly 20 years now, with absolutely no signs of slowing down on the Windows and Office fronts. In case you haven't noticed, various organizations have made great (and sometimes free) office suites to compete with MS Office...but they've yet to make a dent in Office sales. Surely you're not slow enough to actually believe a competing Office Suite will some how hurt Microsoft? It's actually kind of amusing, being that Office is not only the best Office suite on Windows but on Mac as well.
Posted by Maxwell Studly (97 comments )
Link Flag
Makes Sense
Exactly. When a company offers an alternative that is compelling to buyers then we may see a shift to that platform. Until then, Microsoft will win because people coose them. It is ridiculous ... strike that ... utterly false to suggest that the only OS a buyer can purchase is Windows as others have pointed out.
Posted by James_U (80 comments )
Reply Link Flag
Xbox 360 to ramp up...
From what I've read and heard, MS has another plant that is ramping up 360 production so by 2nd quarter, the numbers will be better.
The issues with the defects of xbox 360 are rather small. Most consumers that complained were actually the problem (they placed the units in areas that were constrictive to the units cooling needs...they had the game unit and powersupply in confined space or on rug with obstructions).
And we will likely see EOL for the original xbox.

Personally, I've not contributed to the xbox360 numbers (nor have my colleagues) as we want to see a cheaper price ($349 for premium and $259 for core). The idea of $60 games is silly and it shows now in the numbers.
Posted by Below Meigh (249 comments )
Reply Link Flag
Console isn't cheap to make
Microsoft doesn't make any money off of the box itself. I've read that they are losing money on each box. Where they intend to make that up is in the game sales. If you are waiting for a lower price for the console, then you better make yourself comfortable while waiting.
Posted by Seaspray0 (9714 comments )
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