Microsoft yesterday revealed serious losses of over $177m (£112m) from its Xbox games console, despite its initial protestations that the device was 'selling well'.

The company's financial documents, filed with US financial watchdog The Securities and Exchange Commission, showed a loss of $177m from 1 July to 30 September this year, an added loss of $68m (£43m) from the same period last year.

But some of this cost can be attributed to high marketing and advertising costs incurred setting up the online gaming zone, Xbox Live. The company said it would be ploughing a further $2bn (£1.27bn) over the next five years into creating its online Xbox Live service.

Perhaps the most significant factor was the price cuts the company was forced to make shortly after the Xbox's launch.

Losses of $33m (£21mn) in its mobile phones division and $97m (£62mn) in its MSN net service added to Microsoft's woes. But there's no need to worry about Bill Gates' bank balance just yet. His company reported a cash fund of $30bn (£19bn) and profits in its software division of $3.5bn (£2.2bn) for the same period.