Xbox, MSN Losses Grow in Q2'03

Widening losses in consumer businesses were the most notable feature of Microsoft’s latest 10-Q filing with the U.S. Securities and Exchange Commission, in which the company reported financial results for each of its seven business segments in the quarter ended Dec. 31, 2002 (Q2’03). Windows desktops and desktop applications such as Office maintained their position as the most profitable Microsoft businesses, with margins of about 80%. Windows servers and server applications showed lower profitability, and losses continued in all the company’s other business areas. (For complete results, see the chart “Finances by Business Segment“.)

Connors Defends Xbox, MSN

As expected, the holiday season saw higher losses for the Home and Entertainment segment, which includes Xbox. The company sold around 800,000 units in Dec. 2002-its best month ever-but because it loses money on each unit sold, this business segment’s losses almost doubled from the previous quarter, rising from US$177 million to US$348 million. Microsoft plans to spend US$2 billion over the next five years on Xbox research and development and building the Xbox Live online gaming service, and has not said when it expects the business to begin generating an operating profit.