Microsoft: Zune revenue dropped by 54 percent

Microsoft's fourth-quarter revenue from its Zune platform dropped by US$100 million, a decline of 54 percent on a year earlier.

Lower sales of Zune portable music players led to the decline, Microsoft said in a 10-Q filing with the U.S. Securities and Exchange Commission on Thursday. The Zune platform also includes the Zune Marketplace online store and the Zune Social online music community.

Microsoft launched Zune in November 2006 with the hope of posing a serious challenge to Apple's highly successful iPod franchise.

However, the iPod continues to outsell the Zune by a mile: Apple shipped 22.7 million iPods in the quarter ended Dec. 27, up 3 percent compared to a year earlier, it said in its 10-Q filing on Thursday. While shipments increased, iPod revenue for the fourth quarter was down 16 percent on a year earlier, as a result of price cuts and the introduction of cheaper models, Apple said.

The Zune sales decline raises questions about how long Microsoft will continue to invest in the platform. The company announced 5,000 layoffs and an 11 percent decline in its net income on Thursday.

Microsoft will continue to "invest in long-term opportunities," said the company's public relations agency in London -- but the agency declined to say whether Zune is one such opportunity.

Zune is part of Microsoft's Entertainment and Devices Division, whose overall revenue increased a modest 3 percent year on year for the quarter ended Dec. 31. Zune's contribution was around $85 million, in contrast with revenue of around $185 million a year earlier.

The overall revenue increase for the division was driven by sales of the Xbox 360 gaming platform. Although the Xbox system was reduced in price over the last year, Microsoft made it up in volume, selling 6 million consoles. For the second quarter a year prior, Microsoft said it sold 4.3 million consoles.

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