Microsoft’s Entertainment and Devices Division, which houses the firm’s Xbox operations as well as its Zune MP3 player, TV and mobile products, has seen its operating loss for the latest fiscal year increase by 47 per cent, reaching $1.06 billion.

The losses were blamed on the $1 billion warranty costs faced by the firm following the admission that there are hardware  problems with its Xbox 360 console.

Annual revenues, on the other hand, increased by 28 per cent to reach $6.08 billion.

The company’s Q4 results showed operating losses hitting $1.2 billion, an increase of 183 per cent, whilst revenues dropped 10 per cent to $1.16 billion. Decreased 360 console sales were partially to blame – Microsoft shipped 700,000 units in the period, down from 1.8 million in the same period last year.

Microsoft also revealed that it has shipped 11.6 million Xbox 360’s since the machine’s launch in November 2005. It maintains that its Xbox business will be profitable this year.