by , 1:30 PM EDT, July 26th, 2007

Microsoft's Entertainment and Devices division posted a year end US$1.89B loss which included a US$1B charge to repair defective Xboxes. Microsoft shipped 700,000 Xboxes, down from 1.8 million during the same period last year, according to Gamesindustry.biz.

Microsoft said that reduced manufacturing costs will offset some of that loss. They also said that its entertainment division will turn a profit this year.

In addition, Microsoft's revenues for Xbox and PC games fell by 28 percent to $265M. On the whole, Microsoft's total revenues for the year were US$51.2B.

In addition, Microsoft announced that it will lower the price of its HD DVD player, sold separately from the Xbox, from US$199 to $179 and will offer five free HD movies with players purchased between August 1 and September 30.

Lowering the price of HD DVD players is consistent with Toshiba's strategy to combat Blu-ray by being the cheapest player. What's notable is that both companies, Microsoft and Toshiba, are losing money with their Xbox and HD DVD offerings respectively.

This is in contrast to Apple which announced on Wednesday that it is making money in all three of its major business sectors, Macs, music, and iPhone.