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Huge Xbox losses hidden by patent royalties

After Dark Gaming

Nomura’s Rick Sherlund believes gaming business has been losing billions for Microsoft, but Android licensing fees obscure deficit.

Xbox

Microsoft is hiding billions in losses from its Xbox gaming business, according to Nomura analyst Rick Sherlund. In a note to investors yesterday, Sherlund laid out a plan suggesting what steps Microsoft should take to resolve its current CEO vacancy and address some key issues going forward. One of Sherlund’s key points in the note is that the Xbox platform, despite being largely viewed as a success, is actually losing huge amounts of money for Microsoft, according to his own estimates.

“If we start with the overall traditional [Entertainment and Devices Division] business that actually loses money before corporate allocations and back out the nearly $2 billion 95 percent gross margin Android phone royalties, we conclude that Xbox platform plus Windows phone and Skype lose about $2.5 billion per year, and we…

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