Microsoft’s Games Business Up 60%

In dramatic contrast to Nintendo’s results earlier this week Microsoft’s Entertainment & Devices Division, corporate home of the Xbox 360, has recorded strong growth during the last quarter.  Gaming is the minnow in the Microsoft divisional pond though, its contribution to the company’s overall performance almost getting lost in the noise.

It is quite some overall performance though from the giant of the PC software world.  As a whole Microsoft have recorded a revenue of $16.43 billion for the three months to 31 March 2011, up 13% on the previous year’s figure.


The company’s operating income of $5.71bn is up 10% while its net income is up 31% to $5.23bn.  With revenue from the Windows desktop OS down it has fallen to the other divisions to generate the increases.

“Consumers are purchasing Office 2010, Xbox and Kinect at tremendous rates”, says Microsoft’s chief financial officer Peter Klein, “and businesses of all sizes are purchasing Microsoft platforms and applications”.  It is not the number of copies of Windows Server 2008 and Microsoft Office you are here to read about though, so we will brush those aside.

A bigger percentage make for a better headline

You will have already noticed from this article’s title up at the top of the page what the gaming-related headline figure Microsoft would like you to take away from their quarterly financial results is.  A big, fat 60% increase for their Entertainments & Devices Division, which we should note also includes Windows Mobile as well as all things 360.

More important than simply knowing the increase is of course to know which number has risen by that amount.  It is the division’s revenue (sales) which is up 60% (or 59.92% if you round to two decimal places) to $1,935m from $1,210m in the same quarter last year.

Perhaps the more important figure though is that of the division’s operating income, which subtracts things like the cost of manufacture and marketing from the revenue.  For that figure they have recorded a smaller, but still significant, rise of 50% with the operating income growing from $150m to $225m.

The Pros and Cons of Selling a Popular Console

life-to-date total now 53.6m

Bolstered by Kinect the Xbox 360 has had a great quarter, selling another 2.7 million units during January, February and March, which makes it their record third quarter to date for 360 unit sales.

Compared to the same quarter a year ago, when it sold 1.5m, it has recorded a unit sales increase of 79%.  The strong quarter makes its life-to-date total now 53.6m as of the 31st March 2011.

Kinect sales for those three months were almost as high as those for the Xbox 360 itself with the IR-equipped, human-tracking sensor selling another 2.4m units to add to the 8m it sold following its release in the previous quarter.

That success is not without its drawbacks though.  While in the earnings press release Microsoft are keen to highlight the strength of Xbox 360 and Kinect sales, if you dig a little deeper, those sales are not all good news.

In their own analysis of their financial performance during the quarter you can find the statement, “Cost of revenue increased $1.1 billion or 41%”, with the key factor being identified as the “increased volumes of Xbox 360 consoles and Kinect sensors sold”.  Which strongly suggests that hardware is still an overall loss-leader for Microsoft (i.e., they sell hardware at a loss to generate revenue later in its life cycle though software and Xbox LIVE subscriptions).

One interesting point to consider is that now Microsoft have made a concerted effort to push the 360 further into the ‘casual’ side of gaming with Kinect, how much more of a hard sell will it be to encourage those more casual gamers to purchase a Gold subscription?  You would also have to believe that those are also exactly the sort of gamers likely to purchase fewer games.  Will the cost of the hardware at some point mean that Kinect has been too successful?

It is not only the hardware side of gaming that is causing them some hurt though.  They are facing higher costs providing online services, “including traffic acquisition costs and royalty costs relating to Xbox LIVE digital content sold”.  There you have a couple of reasons for the relatively recent increases in the cost of Xbox LIVE Gold subscriptions.

And the crystal ball says…

Microsoft are clearly expecting more good news from their Entertainment & Devices Division in the coming months.  For the three months to the 30th June 2011 they are expecting the division’s revenue to record growth of 25% on where it was a year ago.

When it comes to gazing deeper into the murky haze of the mists within their mystical crystal sphere they give nothing away, instead choosing just to tease us gamers.  All they have to say for the division’s expected performance in their next financial year, which starts July 1st 2011, is that they “expect momentum to continue, with more to be shared at E3 in June.”

Any guesses as to just what that “more” might be?

Source: Microsoft



  1. I expect more Kinect, and maybe lots of gloating over a certain store’s problems…

    • I *highly* doubt you’ll see gloating over the PSN issue. In fact, if memory serves, Major Nelson even voiced his condolences over Twitter when it first started.

    • I strongly suspect that rather than gloating, Microsoft are in the process of running a thorough security audit on all aspects of XBL.

    • im not a fany boy for ps3 i used to own old xbox and i loved it thought ps2 was poor next to it but ive been on ps3 for 4 years now and would never ever pay to go online like 360 users u pay for games console everything that goes with it internet then they want u to pay to play not a chance i can easily afford it just taking the pi$$ if you ask me

  2. I’m amazed that they’ve sold 10m kinect units as an accessory at that price,kudos to them.
    I’m sure they would have wanted to milk xbox 360 for another 2 years, but they must have contingency plans to release a console within 6 months of their opposition.

  3. Well what do you expect when you look at the price of it, I was going to get it when it was £149.99 from GAME but stopped end of confirming my details.

    • This was 250GB model was, now its £189.99 -_-

      • Same, the only reason I stopped myself from getting it was because I was only in the UK for 5 days at the time and it would have been a waste of money.

  4. Puts paid to the theory that MS and the 360 are running out of steam. For the time being at least.

  5. I’d be interested to see how much their sales have been affected by the PSN problems.

    • Unfortunately, we will never know for sure and will only be able to guess as we don’t know what would have happened if the PSN had been fine.

      One of my guesses right now is that if the 360 continues to have a great year, then PlayStation fans will say it is only because of the PSN issues and not because of the strengths of the 360 and Kinect.

      Ironically, those same PS fans were probably the ones shouting on all the blogs that they were going to sell their PS3s and buy 360s because of the PSN downtime.

  6. Good for ms. Hardly surprising with the amount of advertising. In one go it was on my tv, butter, yogurt, friend, juice and radio.

    • MS have started advertising on Friends now? That is a personalised marketing campeign!

  7. wasn’t there some stat somewhere that said most wii owners have only ever it to play wii sports?

    that would be the casual gamers who would probably never have bought a console before, and all the grandparents. ^_^

    if the same thing happened to kinect, well, i’m sure that’s not what ms wants.
    they’re selling a lot of kinect units, that’s undeniable, but how many games are they selling that use it?

    the problem i, and most people, have is that ms seem to be focusing solely on kinect, at the expense of what would be considered their core audience.

    seriously, apart for gears 3, what do ms have coming out this year?

    mind you, it’s not like i’m the first person to ask that question.

    • My thoughts echo yours, the motion control gimmick (imo, of course) worked so well on the wii because it was such a simple, profitable bit of hardware to begin with. Surely with a console that costs them so much targeting an audience who aren’t likely to purchase many games and generate revenue that way is counter-intuitive.

      I think Sony may have avoided that pitfall because no-one in their right mind would buy a ps3 purely to play the move with.

  8. I was just thinking, Greg. You must have already drawn a red circle around April 2011 so when the figures come up, we can see what damage Sony’s PSN fiasco has done to them (re: hardware sales, etc) and subsequent months to follow.

    • Trouble is Mike, as I put in my reply above, we don’t know what would have happened if the PSN hadn’t been hacked. From now until July or August is a slow time for hardware sales anyway.

      The obvious and likely shorter term impact will be on PSN revenues which will be a combination of people not being able to spend as its down, people switching to PSN Cards from Credit Cards and fewer impulse purchases and people staying away because it is perceived as more risky.

      It’ll be another three and a half months before we see Sony’s preliminary results for this current quarter. Their update on last quarter is due in a few weeks though and you can be sure I’ll report for TSA on anything they have to say on the subject at that point. The shareholders, if no one else, will want to know Sony’s outlook for the financial impact of their latest security balls-up.

Comments are now closed for this post.