A new note from Nomura analyst Rick Sherlund claims Microsoft is using approximately $2 billion in yearly revenue from Android patent royalties to cover up a similar amount of losses from its Xbox business.
According to Sherlund’s estimates, the $2 billion in Android revenue (95% of which is profit) has been lumped into Microsoft’s Entertainment and Devices Division for “the past few years.” If that operating profit were removed from the division Microsoft would be showing a yearly loss of approximately $2.5 billion from their Skype, Xbox, and Windows Phone products. Sherlund claims that the “Xbox platform” is responsible for $2 billion of those losses.
Unsurprisingly, Sherlund concludes that Microsoft should spin off or sell the Xbox business, which he describes as an “orphan group… that doesn’t really fit with anything [the rest of the company is] doing.”
It is no secret that Microsoft lost a ton of money while building up their Xbox business (the EDD lost approximately $4 billion over the course of the original Xbox’s life and another $3 billion after launching the Xbox 360), but the company has shown relatively meager profits in the division for the last few years. Assuming Sherlund’s estimates are correct, it appears that even those small gains were nothing but smoke and mirrors.
If there is any truth to the numbers in this new report, it is no wonder why there is a growing number of high profile Microsoft shareholders who are publicly pushing to sell the Xbox division less than a month before the launch of the Xbox One.
