Red Ring of Death surges Xbox division losses

Microsoft just released its Q4 and fiscal year financial results, which showed the company’s growth at a 15 percent increase over last year. Overall, things were good at Microsoft, though the company’s Entertainment and Devices Division (EDD) weren’t one of the company’s financial stars.

The EDD once again posted losses, but this year a stunning $1.89 billion – about 47 percent more than the previous period’s $1.28 billion loss from last year.

For Q4, operating losses increased 183 percent to $1.2 billion, mostly due to Microsoft’s over $1 billion charge for its new three-year warranty against the Red Ring of Death.

Microsoft attributes the majority of its operating loss to the change in Xbox 360 warranty policy and slowing sales, though the loss was "partially offset by decreased Xbox 360 console manufacturing costs." Also helping to pick up the slack were sales of Zune, video games and Xbox 360 accessories.

Overall revenue was down during Q4 at $1.16 billion, but fiscal year revenue was up 28 percent to $6.08 billion.

Despite this rather hefty shortfall, Microsoft expects great things for the upcoming year. In May, Robbie Bach, president of the EDD, said that the division would be profitable by 2008. “It's a business that will be profitable next year—we'll make money next year and that will be the first time, which is pretty exciting,” said Bach. “And then the next two or three years are the place where you need to make tracks, and the next two or three years are where you have to make money.”

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