Last quarter: Microsoft lost $289 million on Zune, CE devices

Microsoft “is betting heavily on the consumer electronics business for future growth, and late last year it introduced a digital media player, Zune, which competes with Apple’s iPod. But Microsoft’s consumer entertainment and devices unit has contributeds no profits yet, losing $289 million in the quarter,” Steve Lohr reports for The New York Times.

Full article here.

The Associated Press reports, “Microsoft Corp. said Thursday its fiscal second-quarter profit fell 28 per cent, as delays from the launch of its new version of Windows cut into holiday-quarter revenue. For the three months ended Dec. 31, earnings fell to $2.63 billion from $3.65 billion… Revenue rose to $12.54 billion from $11.84 billion in the year-ago quarter.”

Full article here.

[Thanks to MacDailyNews Reader “Tom S.” for the heads up.]

[UPDATE: 9:42am EST: Updated headline.]
The figures for Apple’s last quarter: revenue of $7.1 billion and net quarterly profit of $1.0 billion vs. Microsoft’s much larger figures of $12.54 billion and $2.63 billion, respectively. Windows and Office are licenses to print money, it seems, regardless of how such licenses were obtained. Apple generated revenue of $4.061 billion on iPod, iTunes Store sales, iPod services, and iPod accessories vs. Microsoft’s $289 million loss on Zune and CE devices. That’s a differential of $4.350 billion.

Related articles:
The Motley Fool: Apple makes Microsoft’s Zune a paperweight – January 10, 2007
Zune: Apple cannot lose. Microsoft cannot win. – July 26, 2006

59 Comments

  1. It just occurred to me why the Zune will not be able to replicate the X-Box’s 2nd generation success.

    It’s all to do with Apple’s secrecy. When Apple finally produce a new product, it can be years ahead of the competition.

    I can’t see Microsoft competing with the 6G wide touchscreen iPod. Based on what they did with the Zune…. They’ll probably just take a Windows-mobile PDA and add a media player interface on top of that.

  2. To be fair, MDN clearly doesn’t understand accounting, and in this case has posted a very misleading and biased headline.

    Apple did not “make” $4 billion on iPods. That implies $4 billion in profit. They had sales of $4 billion for iPods.

    More importantly, the $289 million loss was for their entertainment division that, along with the Zune, also happens to sell the Xbox. So you really have no way of knowing what the numbers were for the Zune.

    While this is obviously a Mac centric site, it’s a bit disappointing that MDN actually doesn’t want to rely on facts and will put up a headline like this that has no basis in reality.

  3. So… If I read this correctly Apple, in terms of revenues, earnings and the like, is about 1/2 the size of Microsoft? I wouldn’t have thought the difference between the two was that small, given MS seems to be the behemoth industry leader (dinosaur) and Apple the “small” “niche” up-comer…

    If this is so, this really is good news.

    Oh, and if Critic’s critique of MDN’s headline is right, let’s get it corrected MDN – no need to confuse or distort – the straight news is plenty good.

  4. Inquirer, that’s the thing, Apple may have a smaller market share in terms of Computers so might appear to be smaller than Microsoft, but because they make the hardware and software the difference isn’t always as huge as you might first think.

  5. Inquirer,

    In terms of revenues, yes. Earnings, no.

    This past quarter was an aberration, with lower revenues from software than usual as people held off waiting for vista and new Office.

    In a typical quarter they post much larger gross margins and generate a lot more free cash flows than Apple. This is why they have $40 billion in short-term assets AND pay dividends. This is what makes MS more valuable in terms of market cap.

    In any case, it’s difficult to make a direct comparison between the two, since they actually are in different businesses. MS is pretty much a straightforward software company (despite Xboox and Zune), while Apple’s business is still driven by hardware (computers and iPods), which makes for completely different economics in running the business.

  6. “critic” — Ouch. I think MDN better correct their headline, or end up looking foolish.

    Still, it’s amazing how much money Microsoft loses on every single division except Windows and Office. When the inevitable happens, and revenue growth in these areas begin to slow to a stop, Microsoft’s stock will collapse.

  7. I’m a Mac/iPod fan but I completely agree with critic.

    How can you spend so much time posting stories about FUD, inaccuracies and lies from biased and/or uninformed anti-Apple writers and then commit the exact same errors yourself?

    Sure, we know the iPod is great and Apple is hitting on all cylinders but that doesn’t excuse any blatantly inaccurate or miseleading posts.

    At the end of the day, MS makes a $12B+ annual after-tax profit. At that rate, they will be able to continue doing what they have done for 20 years….sell inferior products under the guise of massive marketing efforts.

    How about you just stick to correcting misleading reports about Apple products?

  8. Apple’s market cap is a much larger percentage of Microsoft’s than it was not so long ago. And while Apple continues to diversify and create new markets (iPhone and AppleTV), MS is left regurgitating variations of the same old crap. Before long it will implode.

  9. Ford lost $12 billion in 2006. Apple didn´t. Neither did Microsoft or Sony or Pepsi-Cola.
    Why is comparing one company to another important?

    ———-
    And Apple did not make $4 billion in profit off iPod. And the lose of money by Microsoft is not solely from Zune.
    MDN, you guys need to reach beyond that high school education.

    ———–
    MDN: “The figures for Apple’s last quarter: revenue of $7.1 billion and net quarterly profit of $1.0 billion vs. Microsoft’s much larger figures of $12.54 billion and $2.63 billion”

    So Microsoft made 21% profit on sales vs. 14% for Apple. Apple you have to do better.

  10. So if Apple made 14% profit on each item sold divided by how many items Apple sold last quarter…

    Apple surely has the highest profit on the iPod line up….wonder how much they lose on each computer they sell….
    Does Apple break out profit per division like it appears Microsoft is doing?

  11. jscan:

    Whilst I understand your point re: MDN, just wanted to make it clear that MS made a $2.5B profit on revenues of $12.5B – they didn’t make $12B profit.

    Considering Apple is a much smaller company, I think their profit of $1B on $7B revenues is especially good next to Microsoft, who made roughly double the profit on roughly double revenue – so both companies appear to be just as profitable, only Apple doesn’t have the same exposure in every industry sector that Microsoft does, do it’s pretty impressive IMO.

    Sacha
    England

  12. Connor MacBook: “MS is left regurgitating variations of the same old crap.”

    Xbox, Zune: those are new. And Xbox is quite successful. Zune it is too early to tell if it will be a success.
    Wait another year or so.
    And wait for the synergy between Xbox and Zune to develop. Download movies, music etc on Xbox, watch on Zune!

    Instead of being critical of Microsoft, people should demand more of Apple. The MacWorld iFone only thing was lame. Where are all the new computers, now OSX. And did you know that sales of Apple desktops are dying – sales were about 20% under what was forecast.

    Wasn´t Leopard supposed to hit the streets before Vista?

  13. The Xbox still isn’t profitable, and with the competition they’re facing, it may never be. The Zune is just a pipe dream. Even if it were a better product, it would have a huge challenge catching up with the iPod. Microsoft has two cash cows: Windows and Office. With all the free alternatives to Office, why pay MS for what at this point is a stale product? Windows is showing its age too. XP is merely tolerated, and Vista is a disappointment, even to Windows fans. Microsoft needs a hit soon, or they will be in trouble, whatever the numbers are now. ” width=”19″ height=”19″ alt=”wink” style=”border:0;” />

  14. The Xbox is not really a success when measured against the other consoles. The Nintendo gamecube was considered a major failure by most people, and it sold just as many units as the Xbox did! So how does that make Xbox a success? Also, when I go to the store, I see that people are begging for PS3’s and Wii’s, and there are Xboxes sitting on the shelf that they don’t even consider getting instead.

    Matthew

  15. Can you imagine if Apple’s customer base was as brain dead as Microsoft’s customer base?

    Apple could really make big bucks selling any old piece of crap and not have to spend untold millions working for 2.5 years developing a cell phone killer.

    They would just have to rebrand a piece of LG crap, stick a half-baked OS on it and force it on their fan-base.

    Wait! That didn’t work for Microsoft’s Zune.

    Is the Microsoft customer base finally getting a clue?

  16. “To be fair, MDN clearly doesn’t understand accounting, and in this case has posted a very misleading and biased headline.

    Apple did not “make” $4 billion on iPods. That implies $4 billion in profit. They had sales of $4 billion for iPods.

    More importantly, the $289 million loss was for their entertainment division that, along with the Zune, also happens to sell the Xbox. So you really have no way of knowing what the numbers were for the Zune.

    While this is obviously a Mac centric site, it’s a bit disappointing that MDN actually doesn’t want to rely on facts and will put up a headline like this that has no basis in reality.”

    I like what that guy wrote. It’s true, Apple didn’t make 4 billion, they SOLD 4. Guess who else lost money when they released a new product – Apple! No one makes all their money back when the product is released – they make it back when they hit the BEP (break even point) So don’t gettin your panties in a wad Apple folks, it’s not an abberation for Microsoft, it’s part of business. Sony lost money on the PS 1-3 until they hit that point, so just stop.

    I really used to like this site, but the more I visit the more it makes me hate some of you guys. Just because MS sucks and Apple rocks, doesn’t mean that every thing MS does sucks or everything Apple does is invincible. Anyway, go Appple!

  17. I agree w/ the last post, in spite of the massive revenue & profitability of MS today, they are solely dependent on two products clearly at the end of their product life cycle…

    Those that say ‘it’s just too big to implode’, remember it wasn’t that long ago that the same was said of AT&T (not the regurgitated renamed SBC, but the ‘real’ AT&T)… Look how quickly a company that once had annual revenues of $60B collapsed due to poor leadership in a changing market…

  18. Isn´t Apple dependent on the iPod to be profitable?
    What was the profit on the computer line-up for Apple?

    With all the R&D, marketing and other costs you think the Apple iPhone (or any new Apple product) is profitable withing the first 3 months of introduction (like the Zune).

    And while Microsoft is subsidizing its XBox hardware, how much are they making off games and games licensing???

  19. The idea that the xbox is a success in the marketplace is a myth. Sure it sold more than PS3 or Wii over the holidays, but that is because they were available, and the others weren’t. PS2 sold more than the xbox over the holidays. You rarely see that printed anywhere. BFD, there are 10 million xboxes supposedly in living rooms. We are nearing 100 million iPods. Which one do you consider a success.

    The fact that the Zune and the xbox are lumped into the same division that lost $300 million last quarter, probably means that the xbox is losing the majority of that money. MS admits that they lose money on each console sold. They claimed they break even on Zune sales. If I owned MS shares, I would be pissed that they are throwing my money away due to mis-management.

  20. MDN wrote, <<Apple generated revenue of $4.061 billion on iPod, iTunes Store sales, iPod services, and iPod accessories vs. Microsoft’s $289 million loss on Zune and CE devices. That’s a differential of $4.350 billion.>>

    You can’t take Apple sales, and subtract MS’s loss and get a differential. You can take sales and subtract MS’s sales on Zunes. You can take iPod profits and subtract MS’s loss on sales of Zunes, but you can’t do what you just did!

    And, for the person who asked, the gross margins on iPods vs Macs is roughly the same, in the 28% range, plus or minus a couple percent. All you need to do is look at Apple’s gross margins before the iPod, ie 6 years ago, and compare it to today. The gross margins are in the same range. This comes up all the time in regards to Apple’s cost of goods sold. Look at the iPhone. When the parts breakdown showed the parts cost about 50% of the retail price, some journalists thought Apple could drop the price. However, it’s typical for Apple to have a product that costs about 50% of retail in just parts and labor. When you factor in all their costs, they’ll find gross margins to be about 30%, just like all the rest of Apple’s product line. When you take away all the other expenses, Apple is left with net margins of about 12%. This quarter was higher, but 12% is Apple’s typical net.

  21. schmluss: “Sure it sold more than PS3 or Wii over the holidays, but that is because they were available, and the others weren’t. PS2 sold more than the xbox over the holidays.”

    So Microsoft did good and the others didn´t.
    Schmluss, if one´s nusiness can´t get product out when the selling is happening…well, game over.

    Do you ever question the profitability of each Apple product? Mac mini is a dog seller, Apple desktops sales way off…the only thing that is going great for Apple is iPods and maybe notebooks (don´t know how much they profit/lose on each sale).

    There is too much analaffixation by MDN about Microsoft.
    With the iPhone coming will it be Nokia, Motorola and others profit/loss statments that MDN will be regurgitating over?

  22. Mac owner x 5: “So Microsoft did good and the others didn´t.
    Schmluss, if one´s nusiness can´t get product out when the selling is happening…well, game over.”

    I’m not saying that xbox didn’t sell. I’m saying that they had ONE ‘good’ holiday season. Once Nintendo and Sony can make enough consoles, then game over for the xbox. With the PS2 selling more that the xbox, it shows that a lot of people are looking to play for less.

  23. sclmuss – wrong again.
    xBox outsold them all.

    “Nintendo, Sony and Microsoft sold, respectively, 604,200, 490,700 and 1.1m next-gen games consoles in the US in December 2006, retail market watcher NPD said last week. The company’s figures show the Xbox 360 as the clear winner.

    December marks the first month during which all three consoles were on sale for the full 31-day period. November’s figures, released by NPD last year, inherently showed lower numbers for the Wii and PS3 as these machines didn’t go on sale until the middle of the month.

    Adding the numbers for November and December together, you get 1.61m Xbox 360s, 1.08m Wiis and 687,700 PS3s – rather less than the figures quoted late last year for sales from the beginning of November through to Christmas Day, though these would have been early estimates.

    Of the recent launches, Wii handsomely beat PS3, but was equally trounced by the Xbox 360. Hindering both Wii and PS3 sales was widely reported supply tightness. Had supply been equal, the Sony and Nintendo console would have shown higher numbers.

    Older consoles did well too. Sony’s PS2 chalked up 1.4m US sales in December, while 1.6m Nintendo DS handhelds flew off the shelves during the month, compared to 953,200 PSPs. Undoubtedly, all three machines were helped by the difficulties some consumers experienced getting hold of the more advanced consoles from those companies.”
    http://www.reghardware.co.uk/2007/01/15/us_console_sales_npd/

  24. “it’s a bit disappointing that MDN actually doesn’t want to rely on facts and will put up a headline like this that has no basis in reality.”

    You must be new here… ” width=”19″ height=”19″ alt=”LOL” style=”border:0;” />

  25. I wonder how much of the loss was from paying Zune Tang to come on this board everyday and troll? Did they pay him in cash, buy him a laptop with Vista, or squirt him some special pictures and movies?

    Speaking of special pictures and movies, MDNMW: position

  26. YOU NEED TO FIX THE INCORRECT FINANCIAL CALCULATION…

    “Apple generated revenue of $4.061 billion on iPod, iTunes Store sales, iPod services, and iPod accessories vs. Microsoft’s $289 million loss on Zune and CE devices. That’s a differential of $4.350 billion.”

    BAD MATH.

    If you want to add something to the $289 million loss you can add Apple’s profits on iPods, if you know what that is, not their gross revenues.

    Please fix.

  27. As has been already pointed out by others, MDN needs to correct its Take on this story. $4 billion was Apple’s iPod REVENUE. The $289 million is a loss for Microsoft, which is NOT revenue. You can’t compare total revenue to a profit (or loss) – this is an embarrassing and elementary mistake that needs correcting asap.

    Rather, let’s just say that Apple is catching up to Microsoft in total revenue. Apple had a $7 billion quarter, Microsoft with all their monopoly power had $12 billion. Who knows, in 3-5 years, Apple may actually top Microsoft in raw revenue, which is really an amazing thought.

  28. Chris:

    The Xbox still isn’t profitable, and with the competition they’re facing, it may never be.

    WRONG. According to iSupply (which takes the stuff apart and figures what it costs to produce), “the HDD-equipped Xbox 360 has a manufacturing and materials total of $323.30, based on an updated estimate using costs in the fourth quarter of 2006. This total is $75.70 less than the $399 suggested retail price of the Xbox 360.”

    Microsoft needs a hit soon, or they will be in trouble

    Yeah. 97.46% market share (according to OneStat.com) sucks, right? Windows could lose over 30% of its market share and still be doing better than the iPod.

    Matthew:

    The Xbox is not really a success when measured against the other consoles.

    WRONG. The Xbox 360 has sold 10.4 million units thus far and in the 4th quarter of 2006 (4.4 million units) outsold the PS3 (750,000 units) and Wii (2.0 million units) COMBINED.

    Ben Dover:

    in spite of the massive revenue & profitability of MS today, they are solely dependent on two products clearly at the end of their product life cycle…

    You’ve got it backwards. In spite of having two major products clearly at the end of their product life cycle, MS posted massive revenue and profitability. Speaking of being solely dependant on a few products COUGHiPodCOUGH, how did Apple’s computer sales do last quarter? 20% lower than expected, that’s how.

    Those that say ‘it’s just too big to implode’, remember it wasn’t that long ago that the same was said of AT&T (not the regurgitated renamed SBC, but the ‘real’ AT&T)… Look how quickly a company that once had annual revenues of $60B collapsed due to poor leadership in a changing market…<i>

    WRONG. Nice try, though. Maybe do a little research. AT&T shows $63.055 BILLION in annual revenues for FY2006, with a profit of $7.356 BILLION. Oops. Don’t forget — SBC was taken over by AT&T, not the other way around. Imagine if Apple takes over Adobe. Would you refer to that company as “the regurgitated, renamed Adobe”? I thought not.

    Schmluss:

    <i>BFD, there are 10 million xboxes supposedly in living rooms. We are nearing 100 million iPods. Which one do you consider a success.

    You’re right. There probably were 10.4 million iPods one year after it’s introduction. Just point me to the stats…

    Sure it sold more than PS3 or Wii over the holidays, but that is because they were available, and the others weren’t. PS2 sold more than the xbox over the holidays.

    Following Schmluss’ logic: Sure Apple sold more iPods than Zune in 2006, but that is because they were available, and the other wasn’t.

  29. Any way you do the math, if Microsoft’s “consumer entertainment and devices unit” was a separate business, and it lost $289 million, it would soon be out of business. Only Microsoft can afford to be so wasteful and inefficient.

  30. not bob: “sclmuss – wrong again.
    xBox outsold them all.

    “Nintendo, Sony and Microsoft sold, respectively, 604,200, 490,700 and 1.1m next-gen games consoles in the US in December 2006…

    Older consoles did well too. Sony’s PS2 chalked up 1.4m US sales in December,”

    First of all, spell my name right. Second what part of xbox = 1.1 million vs. PS2 = 1.4 million don’t you understand. I AM NOT WRONG! 1.4 is higher than 1.1. The OLD PlayStation is still outselling the xbox 360! How can you define that as a success!?

  31. Bryan: “Following Schmluss’ logic: Sure Apple sold more iPods than Zune in 2006, but that is because they were available, and the other wasn’t.”

    No, following my logic, the fact that Sony couldn’t make Playstation 3’s fast enough and people were literally killing each other to get them, and you could walk into the same store and easily walk out with an xbox, it’s not surprising that xbox sold more consoles. We will find out if the PS3 will be as successful over the course of this year.

    Also, you can find Zunes everywhere now as before xmas, but some stores had run out of certain iPods, and iPods sales still blew the Zune away!

  32. Note the number of XBoxes out there are SHIPPED numbers not SOLD. NPD only measures shipped.

    Nintendo is at 3.6 million after 2 MONTHs – this is sold not shipped – Sony is lagging behind but should pass MS also by end of 2007 – mainly because MS after a YEAR is nowhere near a million sold in Japan – the 2nd largest console market.

    MS has spent around $15 billion to sell 30 million XBoxes. You can do that math – it’s not how much it’s selling for now, it’s the giant hole they have to climb out of.

    As for Zune, it is pretty much dead already – MS somehow believes that “average” consumers will buy a flawed product until they get it right – that might work for enterprise software but not for CE gear. Fool us once …

    So, for those keeping track, MS is ZERO for consumers since 1995. MSN, MSN search, Talking barney’s, watches, home media pc’s, mobile pc’s, tablet pc’s, bob, webtv, xbox, xbox 360, zune, etc …

    As long as the shareholders don’t mind propping up Steve Ballmer’s stock holdings or literally throwing all their profits from Win & Office down the drain … sort of like if P&G decided to sell cars – MS is clueless when it comes to consumers.

  33. you know, reading an overwhelming majority of these posts is a great reminder of why you people are commenting about what happens at Apple or Microsoft, as opposed to working at either. You simply have Zero business accumen, and not enough brains to shut your mouth…

    I work at one of those two companies, and I can tell you how reasonable employees at both companies look at some of this stuff….

    First of all, we read the posts here and on sites that cater to rabid Microsoft fanboys/girls and we either laugh or get frustrated. We laugh because…come on. At the end of the day, we are a technology company…not a religion. As much as you want to make us one, your ignorance is better saved for sites that debate points where there is no right or wrong. Debate about Buddah and I can’t tell you that you’re wrong….Debate about business fundamentals and you need to know them.

    We get frustrated because its tough to read so much ignorance and not be frustrated. I mean, really….You people are like out of shape sports fans who sit on the sidelines and complain about the antics of the superstars…every sentence dripping with what coulda, woulda, shoulda been the right thing to do…had only you been in charge. Well, you aren’t in charge, and you remind us why every time you open your mouth. It seems as though those who yell loudest are the ones with the weakest grasp on business basics.

    So, if I work at Apple, here is how I would feel right now: Proud of the work we have done to get this stock moving in the right direction for an extended period of time. Sad that we dropped the word Computer from our name…we liked making those and it feels like giving up in a way. Not that we wont still make them…but I worked here thinking that we were gonna be kings of that someday. I like our iPod business. Who wouldn’t? I am sad that we didn’t drop a big bomb in January other than the iPhone, but Steve wanted that to stand alone. I get that. Our desktop business is struggling, but I want it to. Remember? we are forward thinking…and what sense does a desktop make? I think that iTV is cool, but I am tired of iEverything and wish the price was cheaper. The iPhone will be great, but you do know that we will be losing money for a while on that because of the R&D, marketing, COGS….I wish it wasn’t cingular. I am tired of the pressure to be hip. ANd even though I work here, I don’t have a deluded sense of the history of computing/software/consumer electronics. Steve is cool, but he’s no messiah. If you take your blinders off, you will see that there are a number of things he could have done better. If he sees them, why can’t you?

    If I worked at Microsoft and I was given the chance to trade my current XboX business for the current Wii or Playstation 3 business, I wouldn’t do it. Granted, it’s a long road home…but would any of you rather be Sony right now? If so, you need to refer to paragraph one and also do a Google News Search on Playstation 3. Tell me what you think of the general tone of those articles. Positive? Not so much. The Wii scares me, but it’s lack of extensibility makes me worry less. When we begin to roll out additional services over XBox Live that the Wii CAN’T do, I will feel even better. I understand what we are doing with the Zune, and I am glad that you don’t. Here is a good way to know if you understand….Ask yourself, is Microsoft interested in being in the portable media player business? If you said Yes, you don’t understand what is at stake here over the long haul. Itunes may have sold 2 billion songs over the last five years, but that’s only 200 million a year. As you can see, that doesn’t cover the losses in our ED Division. ” width=”19″ height=”19″ alt=”grin” style=”border:0;” /> And if you want to have some real fun, copy and paste all of your comments into a word document and do a search and replace. Replace the word Zune with Xbox, and replace the word iPod with the word Playstation 2. It’s a lot of the same, and here we are 5 years later and the fact that the 360 isn’t a joke, not easily dismissable, and has a good percentage of the gaming public on it’s side….you can understand why we aren’t folding up our Zune Tents just yet. I look at Apple iTV and like knowing that i have been doing the same thing for a year with my 360/MPC. I am tired of 5 year old jokes that further outline your lack of business understanding.

    But no matter which of these companies I DO work for, I am still glad that I am not one of you people. Sitting on the sidelines and yelling at the real players….

    Welcome to the Social.

  34. The iPhone 16e sounds like a great addition to Apple’s lineup, especially with the new A18 chip and Apple’s first in-house cellular modem. The focus on efficiency, AI-driven intelligence, and improved camera capabilities makes it a solid choice for users who want high performance without the premium price tag.

    Speaking of smooth performance, if you enjoy fast-paced mobile gaming, Traffic Rider is a great game to try on your new iPhone. With its immersive first-person racing experience and stunning graphics, it takes full advantage of the latest hardware for a seamless ride.

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