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Microsoft’s Xbox division has announced their results for Fiscal Year 2006. Highlights:

• Total loss of $1.2 billion.
• Operating losses up 183%.
• Revenues down 10% YTY in Q4 because of “decreased Xbox 360 console sales”; specifically…
• Sales dropped from 1.8 million units per quarter to just 700,000 units per quarter, YTY.
• Revenue from sales of games down 28%.

This is awesome news, making it six years of losses to date.

Microsoft say they expect to make a profit in the upcoming year. O RLY? They couldn’t make a profit during a year in which they basically had no competition, so how do they expect to do better now that the Wii is outselling their console by a factor of 3:1 or more and Wii games are already outselling Xbox games? Nintendo makes a profit on every Wii console, while Microsoft has apparently lost money on every Xbox 360 they’ve sold, even after you factor out the huge losses from replacing broken consoles under warranty.

Added to that, the PS3 is going to see its first “must have” games ship towards the end of this year. Grand Theft Auto IV looks incredible, but the Xbox 360 version is apparently in trouble because it’s hard to cram the game onto a DVD. Demos to date have been the Xbox version, but there’s a good chance the PS3 version is going to end up looking significantly better. Then there’s Ratchet and Clank Future: Tools of Destruction, Heavenly Sword, the new Indiana Jones game, Killzone 2 (with its 2GB levels), LittleBigPlanet, Metal Gear Solid 4, Uncharted: Drake’s Fortune, and so on.

Basically, Microsoft have already been squeezed out of the low end of the market by the Wii, and the hardcore gamers are likely to start getting more interested in the PS3 soon. I suspect Microsoft has much less chance of turning a profit next year than it did this last year.

Nintendo’s web site has a hidden gem: filed away under Iwata Asks… you’ll find a series of lengthy articles talking about the entire design process behind the Wii. If that’s not enough Wii to float your boat, BusinessWeek are also getting in on the act.

Nintendo have gone in pretty much the opposite direction to the rest of the industry. Sony and Microsoft are in an arms race of graphical and CPU firepower. The Xbox 360 has a custom IBM PowerPC CPU which has 3 G5-like processor cores, each at 3.2GHz, with a 5.4GHz front-side bus to connect it to the graphics chip. The PS3 has a 64 bit PowerPC core for general purpose tasks, connected to 7 independent vector processor cores known as SPEs, all at 3.2GHz. (There are 8 SPEs on the chip, but to increase yield they are using chips where 1 is faulty, as well as the faultless ones.) For the tasks needed for video games—3D geometry and the like—each SPE is allegedly about as fast as a general purpose CPU of similar speed.

So, 3 CPUs for Microsoft, 8 for Sony, all 3.2GHz—what about Nintendo? Turns out the Wii has one 729MHz PowerPC, a 243MHz graphics processor, and…er, that’s it. In terms of raw power, it’s a souped up GameCube. Instead of counting on bleeding edge CPU power, Nintendo are counting on innovative gameplay, convenience, and a host of other subtle design factors.

I won’t bother to talk about the controller, because you can read about that everywhere. Suffice it to say, the idea is to dramatically increase the approachability of the system. If you can point, you can play, hopefully. The rest of the design is what interests me more, and doesn’t seem to have received as much attention.

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