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Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times reporter Sharon Chan.

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July 26, 2007 1:55 PM

FAM: Bach reiterates profitability in fiscal 2008

Posted by Benjamin J. Romano

Robbie Bach is breaking down the Microsoft Entertainment and Devices Division to kick off the afternoon session here. He reassured investors who have watched the division lose billions of dollars over the last several years.

"We said last year we are going to drive this business to profitability in fiscal 08," Bach said. "We are right on track to do that. ... And we believe we can have sustained profitability going forward."

He gave no indication of how much profit the division might deliver.

Like CEO Steve Ballmer did this morning, Bach lamented the $1 billion charge the company took in the fourth quarter related to the quality problems with the Xbox 360. He reiterated that it was something the company had to do to stand behind its product.

"Certainly a key focus for us right now is quality," Bach said. He said there's no specific component to blame for the rate of Xbox 360 hardware failures, but rather it was a Microsoft design problem with multiple components involved.

Despite the charge, he sees the business reducing its manufacturing costs.

"We are right on track with where we expected to be with cost reduction. That is a key driver in this business," Bach said, offering no detail about when that cost saving would translate to a price reduction.

"We have a very specific plan with what we're going to do with pricing. We're just not going to talk about it today," he said. (The company today announced a lower price for its HD DVD player, sold as an accessory to the Xbox 360.)

Bach quickly reviewed other areas:

Music: He said the Zune music player has sold more than 1 million units since launch and has about 10 to 12 percent of the hard-drive based player market.

"You are going to see us continue to invest in this business," Bach said, adding that it will likely be a three- to four-year effort.

This year, the company, as it has said, will release new Zune software, devices and features. He also plans to invest in expanding the Zune brand out of the "hardcore niche music space" where it is now.

Video: Bach said the company will expand its Xbox Live video download service -- currently the largest provider of on-demand video content -- to Europe and Canada in the coming year.

Communications: Bach said Microsoft aims to grow Windows Mobile's lead over Research In Motion during the 2008 fiscal year. He said the company expects more than 20 million Windows Mobile phones to be sold this year. Noting the high turnover in mobile phones, Bach said Microsoft wants to make more end-users aware that they are using a phone running Windows Mobile.

"We want them to go in and ask for another Windows Mobile phone," he said.

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