MS Game division post almost 2 BILLION dollar loss.

[diskoboy]

Ouch.

http://www.gamespot.com/news/6175367.html

Even to ol' Bill, that's no chump change.

[7th lutz]

It is is not a big shock. When Peter Moore left Microsoft for EA, I thought something was up. The warranty announcement had a part of why the loss is so big. I expect Microsoft to do better later in the year when games like Halo 3 get released.

[Trebuken]

How can they take a loss on warranties before people have actually sent their systems in for exchange/repair? This money isn't actually lost yet....where was the other .85 Billion lost if they are turning a profit on the system? They must have paid dearly for those exclusives...

If they are taking huge losses again after the Xbox, why do they keep making these things? Does this exclude software, is this just the hardware they are talking about?

[Chadt74]

"How can they take a loss on warranties before people have actually sent their systems in for exchange/repair?"

Accounting and financial reporting is not done on a cash basis and accounting has a matching principal where you match revenue with expense, they already showed the revenue from the consoles so they have to show the warranty expense.

[Griking]

The NY Times reports that even with their games division turning a loss MS as a whole reported a $3.04 billion or 7% profit INCREASE for the quarter.

Link (http://www.nytimes.com/2007/07/20/technology/20soft.html?ex=1185595200&en=2d02ac0db5fc1f71&ei=5043&partner=EXCITE)

[studvicious]

If they are taking huge losses again after the Xbox, why do they keep making these things? Does this exclude software, is this just the hardware they are talking about?

Because they, like Sony, are fighting to have "the box" that will one day in the future control all things media that will sit in everyone's living room around the world. Games are just the avenue to bring them there.

So they're willing to take a short term loss (no matter the size) if eventually in the end they're raking in the dough for being the dominant media player/robot slave/do-everything "box" in the future.

[segagamer4life]

I read somewhere that sony is hurting a tad worse,

http://arstechnica.com/news.ars/post/20070516-sony-earnings-games-division-a-financial-albatross-around-corporate-neck.html

[Icarus Moonsight]

Because they, like Sony, are fighting to have "the box" that will one day in the future control all things media that will sit in everyone's living room around the world. Games are just the avenue to bring them there.

So they're willing to take a short term loss (no matter the size) if eventually in the end they're raking in the dough for being the dominant media player/robot slave/do-everything "box" in the future.

Quoted for truth. While MS and Sony tears each other a new one, you have to ponder. IF these two were to figure out that they are after the same thing and agree to split the pie and unite... we. are. soooo. screwed.

[Trebuken]

"How can they take a loss on warranties before people have actually sent their systems in for exchange/repair?"

Accounting and financial reporting is not done on a cash basis and accounting has a matching principal where you match revenue with expense, they already showed the revenue from the consoles so they have to show the warranty expense.

I see. It's about the reporting. So it is possible that at the expiration of the 3 year warranty the actual loss they take could be much less and they will then report a gain because of what they did not have to spend on 360's that continue to work???

[Bronty-2]

its possible that the actual expense would be less, yes. Its also possible that the actual expense would be higher.

[Chadt74]

Trebuken hopw this can clear up your questions.

When a 360 is sold MS shows $75 of revenue (sales price less cost to make) but if they know on average each 360 will come back and cost them $5 of expense in warranty cost the bottom line should show $70. ($75 revenue from sale of 360 less $5 warranty expense = $70). Again this is at the time of sale

What has happened to MS is that they should have been taking say $88 of expense instead of $5 at the time of sale so now that this amount is estimatable and probable they booked this $1B charge.

So basically MS is saying that we sold $12M consoles and each will cost $83 more than expected to fix than we expected at the time of sale thus we need to take another $1B (12M X $83) in expense for future repair cost to the 360.

Now IF some geek that loves his 360 and finds a magic fix next year and MS has only spent $500M and they are 100% sure that no other console will ever come back, then yes they would 'reverse' the $500M and that would increase their bottom line in the quarter/year they made that transaction.

Note that MS has public accounts who audit their financial statements and make sure these estimates have some basis so therefore the public should have some confidence in the numbers and that the transactions do represent a realistic estimate of what is to happen.

[Gentlegamer]

If Microsoft was Enron, it would book its projected earnings over the life of the Xbox 360 now as current earnings to show huge profits and cover up the losses . . . and do it every quarter.

[boatofcar]

Anybody think this has anything to do with the Sarbanes-Oxley Act? (http://en.wikipedia.org/wiki/Sarbanes_oxley)

[DeputyMoniker]

If Microsoft was Enron, it would book its projected earnings over the life of the Xbox 360 now as current earnings to show huge profits and cover up the losses . . . and do it every quarter.


You summed that up pretty well. lol. "Enron in a sentence."
The Phantom is an even better example.
If Infinium were Enron, it would book its projected earnings over the life of the Phantom now as current earnings to show huge profits. . . even though the Phantom never made it into production.

[Chadt74]

Enron was very different from taking a hit on warranty expense. Enron created "raptor" entites that were kept off their "books" to hide losses and debt. Microsoft is realizing that they did not record enough warranty expense at the time of sale. And this does not have anything to do with Sarbanes-Oxley Act.