Strong quarter for Microsoft and its devices division

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Jan. 25, 2008

Microsoft's second-quarter revenues were up 30 percent, year-over-year, it reported. The company's Entertainment and Devices Division (EDD) also saw revenue and sales jump dramatically, on the strength of strong Xbox 360 sales, lower Xbox production costs, and strong sales of gaming title "Halo 3."

Q1 revenue for the company as a whole was reported to be $16.37 billion, a 30 percent increase over the same period in the prior year. Corporate-wide earnings were $4.7 billion -- an 81 percent increase from a year ago.

Microsoft said its Business division (including Office, SharePoint, and United Communications) grew 37 percent year-over-year. Server and Tools revenue (Windows Server, SQL Server, etc.) grew 15 percent year-over-year, while Client revenue (Windows Vista, XP) grew by a surprising 68 percent, driven by "strong Windows Vista performance," according to the company.

Microsoft created its Entertainment and Devices Division in September, 2006, when it merged its Mobile and Embedded Devices (MED) and Home and Entertainment divisions. At that time, MED contributed about a seventh of EDD's revenue.

EDD revenues were up only three percent, year-over-year, but were up considerably over the previous quarter, as the chart below shows. Additionally, profits were up substantially year-over-year, with the division reporting earnings of $302 million, compared to operating losses of $357 million the previous year.

Revenue for Microsoft's Entertainment and Devices Division (EDD)
(Source: Microsoft financial report)

Microsoft attributed the EDD group's relatively strong sales to having shipped some 4.2 million Xbox 360 game consoles, along with lots of Xbox accessories, peripherals, and software. Stronger profits were attributed to reduced Xbox production costs, and robust sales of the game title "Halo 3."

Microsoft chief operating officer Kevin Turner said in a statement, "We are in the midst of another strong year with great momentum heading into calendar year 2008. We continue to see healthy demand from both businesses and consumers in the United States and our growth in emerging markets is especially strong."

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