Microsoft: Entertainment & Devices Over-Performed

Console revenue will decline.

Posted by Staff
Microsoft: Entertainment & Devices Over-Performed
Despite announcing lay-offs and being hit by a declining PC market, Microsoft has announced that its Xbox (and Zune) Entertainment and Devices division performed above expectations.

In its latest earnings report, the company states: "Entertainment and Devices revenue grew 3% driven by strong holiday demand for Xbox 360 consoles with a record 6 million units sold in the quarter."

It further supports this in a Powerpoint that states, "Xbox 360 console outsold PS3 by two to one in the US" in the second quarter of fiscal year 2009.

Its webcast also states its software attach rate at 8:1.

All of this makes rumours that the bulk of the 1,400 layoffs announced by CEO Steve Balmer will occur in the E&D division either a crying shame; difficult to credit or plain wrong. This is even more true when you consider that the division in fact over-performed. According to Microsoft E&D, "delivered revenue above the high end of our guidance driven by a record number of consumers purchasing Xbox 360 consoles during the holiday season."

This, however, is also balanced by CFO Chris Liddell also stating that, "The entertainment and devices division is highly dependent on consumer spending and while we feel good about the first half results, a shrinking consumer spending environment would weigh on the segment's results in the second half.

"Console revenue will likely decline as a result of our earlier pricing actions. Attach revenue may also slow due to contracting consumer spending and moderating attach rates. The other software and peripherals portions of our business followed the underlying PC market in the second half."
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