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Microsoft FY15 Q4 Earnings: In a Sea of Red, the Xbox Division Stands Out

by Michael Goodman | Jul 31, 2015

As Microsoft CEO, Satya Nadella, sharpens the company’s focuses ever more intensely on the enterprise, the Xbox Division’s performance is helping to secure its future within the company. In its latest quarterly financial release (FY15 Q4), Microsoft recorded its largest quarterly loss ever, $3.2 billion in the three months ended June 2015. While much of this loss was expected due to charges and layoffs related to the divisions acquired from Nokia, it is still concerning.

Within this sea of red, one large positive stands out – the Xbox Division, where revenues grew by 27% YoY. This is particularly impressive given that April – June is typically the slowest sales period in the video game industry and portends good things as we prepare to head into the 2015 holiday selling season. What makes this revenue growth even more impressive is that Microsoft cut the cost of an Xbox One by 20% over the past year. Though Microsoft did not release the number of Xbox One’s sold, its hardware sales have to be up significantly more than 27% YoY considering each console is selling at 20% less than a year ago.

Microsoft may have bungled the launch of the Xbox One but it has clearly recovered and this is good for the industry (see Strategy Analytics Reports Things are Looking Up For Microsoft's Xbox One and Year One Shipments Show Strength of Console Gaming for more insight into the Xbox One’s turnaround).

  • It drives innovation and creativity both among console manufacturers and video game publishers
  • Forces companies to work harder to engage and satisfy their consumers
  • Helps make gaming exciting and prevents costs from spiraling out of control.

Despite all this good news the pressure remains on the Xbox Division to continue to perform. In this new enterprise-oriented Microsoft the Xbox Division cannot expect corporate Microsoft to support it the way they did the original Xbox (it is estimated that Microsoft spent around $4 billion getting the original Xbox established) and wrote off an additional billion dollars to address the Xbox 360's Red Ring of Death issue. Microsoft’s willingness to record over $8 billion in losses and write-downs to rid itself of Nokia should be a stark reminder of CEO Satya Nadella’s patience with under-performing, non-core divisions.

Despite this the Xbox Division’s future looks bright so long as it stays focused, ensures that quality games are available, keeps its consumers happy and remembers that the Xbox One is first and foremost a game console and secondly a multi-entertainment platform. If they can do that then there is no reason the last quarter’s results are not indicative of good things to come.

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