Nomura analyst, Rick Sherlund has told investors that Microsoft may be losing US$2.5-billion on its Xbox endeavours, but is obscuring this loss with revenue generated by Android phone patent royalties.
Nomura is a global financial market investment and analytics group, operating in over 30 countries, with a strong foothold in the European market.
According to a report by Games Industry, Sherlund said “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 estimate that the Xbox platform may account for roughly $2 billion of this.”
“This is contrary to conventional wisdom, we think investors do not realize how extensive the operating costs are for this business and it is concealed by the hugely profitable Android royalties.”
“Xbox is an orphan in our view. It is a ‘cool’ product line and a successful consumer franchise, but it also loses a lot of money and we think is a distraction to the more enterprise strengths of Microsoft,” said Sherlund.