The Company's Entertainment and Devices Division in which the Xbox 360 is located, saw a 10% drop in revenue to $1.16 billion and is operating on a loss of $1.2 billion. Comparatively, the group lost only $423 million the previous year.
Microsoft blamed the 183% increase in its Entertainment and Devices Division operating loss on the $1.06 billion charge to cover the cost of the extended three-year warranty. Microsoft has also been hit with two class action lawsuits in the past two weeks claiming that a design flaw in the Xbox 360 causes the system to irreparably scratch game discs. Microsoft has denied the claim. The company also saw the departure of their corporate VP, Peter Moore to publisher Electronic Arts due to "personal reasons".
Sony has taken this opportunity to catch-up lost grounds and announced a $100 price cut on certain PlayStation 3 units, while Nintendo continues to enjoy robust sales of its Wii systems.
However, Microsoft is remaining optimistic. Since its launch in November 2005, Xbox 360s have shipped a total of 11.6 million consoles and this is still the most successful console of this generation. The company has placed high hopes on the holiday 2007 season, hoping that major releases like Halo 3 will make up for the Xbox 360's misfortune. Amidst the recent setbacks, Microsoft reported that overall profits in the fourth quarter increased 7% to $3 billion, while revenue increased 13% to $13.4 billion.
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