Xbox 360 Sales Jumped 38 Percent in Q1, Microsoft Says

Xbox 360 console sales grew 38 percent to 2.8 million units in Q1 ended Sept. 30 compared to the 2.1 million sold in Q1 last year, Bill Koefoed, Microsoft general manager of investor relations, said in an earnings call Thursday. Xbox 360 “momentum continued,” with the console “outselling every competing console in the U.S. for the fourth consecutive month,” Microsoft Chief Financial Officer Peter Klein said.

Revenue in the company’s Entertainment and Devices Division (EDD) grew to $1.8 billion in Q1 from $1.4 billion in Q1 last year. Operating profit in the division, which includes Xbox, all games and Zune devices, grew to $382 million from $260 million. The growth in revenue was “primarily” due to the 360 platform, Microsoft said in a 10-Q filing at the SEC.

Xbox 360 platform revenue grew 33 percent from Q1 last year, “primarily reflecting increased volumes of Xbox 360 consoles sold and higher Xbox 360 videogame revenue led by” the company’s game Halo: Reach, Microsoft said. The game took in $350 million in revenue during Q1, Koefoed said. “The Halo effect extended to Xbox Live with continued strong membership growth this quarter,” he said.

On the negative side, EDD cost of goods sold grew 10 percent to $3.1 billion, “driven primarily by increased Xbox hardware volume and online costs,” Koefoed said. Cost of revenue increased 19 percent “primarily due to higher volumes of Xbox 360 consoles sold,” Microsoft said in the 10-Q. R&D expenses grew 30 percent, mainly “reflecting higher headcount-related expenses,” it said. Sales and marketing expenses increased 27 percent “due mainly to increased Xbox 360 platform marketing activities,” it said. Operating expenses were $5.9 billion in Q1, an increase of 6 percent.

Klein predicted that the new Kinect for Xbox 360 motion-sensing control system “will be ’the’ gift this holiday season.” But he didn’t say how many units of the new system and games for it Microsoft expects to be sold and said Kinect and Xbox in general carry a higher cost of goods sold than other parts of the company’s business.

The company estimated that industrywide PC sales grew 9-11 percent in Q1, Koefoed said. “Consumer PCs grew single digits while business PCs grew mid-teens,” with emerging markets growing “over three times the rate of mature markets,” he said. Consumers are shifting “from buying netbooks to low-end notebooks and we have not seen a material shift away from low-end PCs due to tablets in the market,” he said. “Instead, we've predominantly seen consumers increase their number of devices and their usage scenarios,” he said. Overall Microsoft Q1 revenue grew 25 percent from Q1 last year to a record $16.2 billion. Profit grew to $5.41 billion, or 62 cents per share, from $3.57 billion, 40 cents.