The true cost of Microsoft's determined assault on the console market is becoming apparent, with new figures filed by the company with the Securities and Exchange Commission in the USA revealing that in the three months leading up to the end of December, it lost $348 million on its Xbox division, on revenues of $1.28 billion.

This is almost twice the loss sustained for the same period one year earlier, when the company lost $180 million on revenues of $833 million. The higher figure is almost certainly entirely attributable to the price cuts and bundle deals which Microsoft has used to carve out a slice of the market for itself - larger losses in this context can perversely mean that the company is actually selling more consoles.

However, other evidence suggests that even this massive expenditure on the Xbox isn't bringing home the kind of success that the software giant might have hoped for. Xbox component supplier Focus Enhancements has revealed that Microsoft has warned it not to expect any volume of orders in the first half of 2003. The company, which makes the video encoder chips used in the console, was told that Xbox sales are falling below Microsoft's forecasts, resulting in reduced component orders.

The Xbox is now the biggest money pit Microsoft has, by a significant margin. The only other loss-making department at the company which comes even close to losing the amount of money that the Xbox does is the MSN Internet access division, which lost $157 million during the quarter.

However, the company can certainly afford to grit its teeth and push forward with the Xbox despite the money drain from the project. The company posted operating profit of $1.97 billion on its Windows software alone, along with income of $1.88 billion from the division responsible for Office and income of $498 million from its server software division.

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