Microsoft's home and entertainment division, which handles the Xbox business, announced an operating loss of $388 million for the quarter ended March 31. It seems Microsoft is feeling the burn from launching the Xbox 360, despite a 16% rise in overall company profit.

In the post-announcement conference call, Microsoft's Corporate Vice President for Interactive Entertainment Business Peter Moore said that 3.2 million Xbox 360s have been shipped worldwide, 1.8 million in North America alone. Moore conceded that at a $125 loss per unit, the costs related to the launch of the Xbox 360 were greater than expected. Expensive airfreight contributed largely to the loss.

Despite this, Microsoft has increased its sales projection for the Xbox 360 from 4.5 million to 5 million units by June 30. They are banking on the idea that if more consoles are made available, more consumers will buy the console, as well as the games. Microsoft is quite optimistic that the home and entertainment division will eventually turn a profit, as the console's CPU switch from 90nm to 60nm tech starts to factor in on cost reduction in the first quarter of 2007. Market analyst P.J. McNealy is even more optimistic as he expects six million Xbox 360s to hit retail shops by the end of June, with 10 to 12 million units shipped by the end of the year.