Microsoft Nears Xbox Profitability

REDMOND, Wash. -- Microsoft's(MSFT) money-losing Xbox 360 will become profitable next year, says the company's entertainment czar.

Moreover, the entire Entertainment & Devices Division is headed for "sustained profitability" in the same time frame, Robbie Bach, the unit's president, said at the company's analyst day on Thursday.

That profit will have been a long time coming. The Xbox 360 and its predecessor have consistently lost money on a per-unit basis, and game software sales have not been strong enough to pull the group into the black. In the fourth quarter, for example, the Home and Entertainment group, responsible for the Xbox 360, grew revenue strongly, to $1.14 billion from $587 million the year before. But the unit also doubled its loss to $414 million.

Bach also made it clear that despite persistent rumors to the contrary, the company is not planning to cut the price of the Xbox. "We're comfortable" with the current pricing, he said. Industry sources say that Sony(SNE), maker of the upcoming Playstation 3, faces manufacturing problems that will likely keep the new version of console in short supply when it debuts later in the year.

Given that, Microsoft would rather keep the margin then cut prices to build share.

Bach disappointed many of the people attending the event here by failing to give many more details of the Zune, Microsoft's answer to Apple's (AAPL) popular iPod.

He did say that the Zune, expected to debut by the end of the year, will not be profitable for the next few years, and he indicated that marketing will be a major expense.

>To order reprints of this article, click here: Reprints