This was revealed in an interesting interview with Robbie Bach, president of Microsoft’s Entertainment and Devices Division. While the division has yet to turn a profit, according to Bach they are expecting to do so the next fiscal year which starts in July.
We have some places where we're leaders and some places where we're challengers. I like having that mix. For three or four years we were trailing Sony. That was an interesting challenge. It gave us good competition, good things to look at. Now, in the Xbox business, we're in more of a leadership position. The competition has its own excitement.
In the music business, competing with Apple aggressively is fun. I enjoy that. They're a great company and a worthy competitor.
Among other topics Bach mentions Microsoft’s focus on what he calls connected entertainment, next-gen Zunes, the Xbox 360, Windows Mobile and its competition with companies like Apple, Sony, Nintendo and Research In Motion.