Microsoft Profits Up Despite Xbox Woes

By Jessica Mintz
Associated Press
Friday, July 20, 2007

Microsoft's fiscal fourth-quarter profit edged up 7 percent despite a hefty charge to cover the cost of defective Xbox 360 video game consoles.

The world's largest software maker said yesterday that profit for the three months ended June 30 climbed to $3.04 billion from $2.83 billion in the comparable period last year.

Results were weighed down by a charge of $1.06 billion related to the video game console repairs.

Revenue climbed 13 percent, to $13.37 billion.

In early July, the company said it would extend the warranty on the Xbox 360 to three years after too many succumbed to "general hardware failure," a vague condition marked by flashing red lights on the front of the console. Microsoft said it has fixed problems in the manufacturing process but would not give details.

Sales in the division responsible for the Windows operating system rose 14 percent, to $3.81 billion.

Sales in the online business, which includes Web ad revenue, rose in the quarter, but it still was not able to turn a profit. Its loss widened to $239 million from $187 million as Microsoft continued to lag Google and Yahoo in U.S. search traffic.

"Right now we're in an investment mode," Colleen Healy, senior director of investor relations for Microsoft, said of the online business in a phone interview. She said that online advertising revenue rose 33 percent.

For the full fiscal year, Microsoft profit rose to $14.07 billion from $12.6 billion the previous year. Revenue was up 15 percent, to $51.12 billion.

Microsoft is counting on several big product launches, including an update to its server software and the pre-holiday release of the much-anticipated Halo 3 video game, to carry the company to double-digit growth next year.

The earnings were released after the close of regular trading.

Earlier, Microsoft shares gained 59 cents to close at $31.51, up 1.9 percent, but those gains were erased in after-hours trading.

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