Bach: Xbox will make a profit in 2008

The president of Microsoft's entertainment and devices division has said he expects the company's console business to finally start making money next year.

Speaking to eWeek, Robbie Bach said: "It's a business that will be profitable next year. We'll make money next year and that will be the first time, which is pretty exciting."

Microsoft announced last week that falling Xbox 360 sales contributed to a 21 per cent drop in revenues for the entertainment and devices division. The first quarter of 2007 saw an operating loss of USD 315 million (EUR 232 million) for the division, which also makes the Zune mp3 player. But these losses were reduced from the same period last year.

Bach told eWeek that he expects Microsoft to stop making a loss on console production soon, with revenue from games, Live and peripheral sales contributing to positive cashflow some time in 2008.

"Xbox is the hardest piece of consumer electronics hardware to produce in the world, no debate," he said, admitting that "costs are a little higher than we'd like". Microsoft doesn't expect to make a profit on hardware alone, but "we'll probably be gross margin neutral on that over the life cycle of the product, and try to break even on that".

But he feels growth in the rest of the business is increasing fast enough to offest production costs. "Right now we're doing a pretty good job. We're humming pretty well in the business. Game attach rate [is at the] highest level in history for a game console at this stage in the life cycle. The same with our peripheral attach rate. Xbox Live has over 6 million members. The pieces are in place to drive the proverbial billion dollars."

Bach also commented on Microsoft's competition, saying he felt Nintendo's Wii put it in a much stronger position than Sony.

"I think Nintendo and Microsoft are clearly in the driver's seat on what's happening in this generation," he said. "Sony I think has some real challenges. They've got a pricing problem, they have a cost problem, they have a content problem, and they don't have an online service."

He also added that the Wii had received "more broad-base acclaim that I would have expected" and was "a very nice product, but it actually has a relatively specific audience and a fairly specific appeal." The challenge it presented to Microsoft was how to compete with it in the casual market, on both Xbox 360 and Windows, he said.