Analyst Recommends Sale of Microsoft's Xbox Division

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Analyst Recommends Sale of Microsoft's Xbox Division

Xbox logo

Microsoft is reportedly about to embark upon a major restructuring effort and one analyst says it should include the sale of its Xbox division.

The word on the street is that Microsoft CEO Steve Ballmer is planning a major restructuring of the company, which would put the focus on "devices and services" at both the consumer and enterprise levels and could also see a simplification of its sprawling management structure. Ballmer alluded to the predicted changes in an October 2012 letter to shareholders in which he wrote, "To best understand what we are about to deliver and what we're building toward, it's important to recognize a fundamental shift underway in our business and the areas of technology that we believe will drive the greatest opportunity in the future."

That future, according to Nomura Equity Research analyst Rick Sherlund, is one that would better serve the company and its shareholders if it did not include the Xbox and Bing divisions. He acknowledged that the Xbox division is doing well but noted "it doesn't seem like a good enough business for Microsoft to focus on."

"There is a shift in the wind upcoming for Microsoft, with shareholders likely demanding a greater say in the direction of the company and how it might be run to drive a better return to shareholders. We think there are a number of things that could be done to improve the return of cash to shareholders and improve the profitability and cash flow of the business," Sherlund wrote in an investor's note. "Xbox is one of the areas of success for Microsoft and is cool to consumers, but it is perhaps time to assess whether this can ever be material to the overall company and might be more leveragable to a consumer-oriented company such as Samsung. Perhaps they would be willing to pay several billion dollars for this to leverage their substantial consumer electronics business?"

A recommendation by a single analyst doesn't necessarily mean much but if a sell-off is going to happen, a major restructuring during the early stages of a much-hyped new console launch would certainly seem to be the time to do it. I don't think it's terribly likely, but it is an interesting idea, is it not?

Source: GamesIndustry

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Which is worse, I wonder? Selling off one of your houses to someone else so they can do who knows what, or staying inside it while you accidentally set it on fire?

Well, the second choice obviously. SO GIVE IT TO SOMEONE ELSE BEFORE YOUR INCOMPOTENCE BURNS IT TO THE GROUND.

If the Xbox one sells well, them selling the division is highly unlikely. I think that unless they loose a massive amount of money it is not going to happen.

It feels like this is a sensationalist article, aimed at getting the ravenous crowd even more foaming at the mouth.

"Look what this one guy said. The Xbox One is doomed! Please scream about it on every internet forum on the internet, k thx bye"

We think there are a number of things that could be done to improve the return of cash to shareholders and improve the profitability and cash flow of the business

The main thing to do would be to get rid of Steve Ballmer. Seriously, Microsoft has been going down the toilet since he was put in charge. Microsoft was worth $500 billion 10 years ago and now they're worth $250 billion. Apple made more money off iphones in 2012 than all of Microsoft's assets combined. Maybe if xbox did get sold to a "consumer focused" company we could actually see something good come from it. I'd love to see Google in the console race...

Of course xbox is probably very profitable for Microsoft so there's no way they'll sell

MrWunderful:
If the Xbox one sells well, them selling the division is highly unlikely. I think that unless they loose a massive amount of money it is not going to happen.

It feels like this is a sensationalist article, aimed at getting the ravenous crowd even more foaming at the mouth.

"Look what this one guy said. The Xbox One is doomed! Please scream about it on every internet forum on the internet, k thx bye"

But it has nothing to do with Xbox being doomed. It's not being sold to a slaughterhouse, it's being sold to another interested party.

OT: This would be a heck of a thing if they actually sold it. I can only imagine what the Xbox Two (XBoo?) would be like.

Most likely shareholders have seen the multitude of flops and mistakes that have been going on at Microsoft lately and are starting to gather a mob for impromptu roasting of Ballmer?

I'll buy it off them, I have some left over roast beef and a half finished Wispa Gold. Frankly that's too generous an offer but I'll stick to it.

Imagine if Sony or Nintendo bought Xbox, that's a weird thought. Hell, imagine if Valve bought them. They've probably got a spare few billion lying around from sales of hats and they could combine it with their Steambox thing.

Uhhhh how can a company not be consumer-orientated?

PoolCleaningRobot:
[...]Maybe if xbox did get sold to a "consumer focused" company we could actually see something good come from it.[...]

You know, it would be the first time MS did something "consumer focused" right away.
Vista, Windows 8, Windows Phone, XBone. They all show how much MS focuses on their customers.

PoolCleaningRobot:
I'd love to see Google in the console race...

*Looks at always-on Kinect*

Yeah, what Google needs to be is even more omnipotent regarding user monitoring and data collection.

DVS BSTrD:
Uhhhh how can a company not be consumer-orientated?

Microsoft sells most of its software to other corporations and has licencing deals with nearly every major corporation in the world. Many, if not most major software companies develop and sell software to other corporations, not consumers.

Raiyan 1.0:

PoolCleaningRobot:
I'd love to see Google in the console race...

*Looks a always-on Kinect*

Yeah, what Google needs to be is even more omnipotent in user monitoring and data collection.

Whats worse, Google giving you great free services at the cost of knowing your shameful web history and spying on you or Microsoft spying on you in your house, stopping you from watching movies with too many people in the room, and making you pay for features that should be free in the first place?

I can guarantee Google would at least let you unplug the kinect

XBone exists to get the Windows 8 UI and Bing universal search in front of as many consumers as possible. Phones and tablets aren't getting the job done. If it makes money, great, but the goal is to get Windows 9 into every next-gen cable and satellite box. They're more likely to buy Tivo than sell Xbox.

DVS BSTrD:
Uhhhh how can a company not be consumer-orientated?

They must be referring to the consumer market, as in the tablets and Windows Phones that people aren't buying. I can't think of anything else they might sell to the public other than OS software, Office (in tiered levels), and their server-related licences. Nothing else comes to mind as Microsoft has given up on their Zune player and Kin phones.

Microsoft does a ton of stuff that people aren't aware of in terms of consulting, training, and managed services, sometimes commanding anywhere between $250 - $300 and hour for contract employees.

Apparently the Xbox-One announcement went worse than we thought.

People are failing to realize that this is not about "Xboner is doomed!" The analyst is just making the point that it's not a high profit area for the company, and Microsoft would be better off focusing its efforts (and cash) into areas that actually compliment and aid its core business.

To explain: the Xbox line may be making money for them, but what's that success taken? A huge investment of money (that could've been invested in other areas of course) and a large focus on the product at the detriment to its other core services such as Windows. The Xbox division of MS has bought up exclusives... from their own platform, Windows. The Games For Windows Live platform was a massive failure, and this was undoubtedly largely because the company did not want it to be a success at the expense of the Xbox.

And now that the Windows OS is facing a crisis of its own, seeing this huge investment sink (i.e. Xbox) siphon up the companies time could easily be interpreted as a sign of poor priorities.

Makes sense. If it does well, sell it for a s@út load of cash. Sinks like a stone, sell it before it drags the whole company down the bog with it. If it just ticks by like a pensioner in the middle lane of the motorway, you have to keep it. But who really wants it now?

Jumwa:
People are failing to realize that this is not about "Xboner is doomed!" The analyst is just making the point that it's not a high profit area for the company, and Microsoft would be better off focusing its efforts (and cash) into areas that actually compliment and aid its core business.

To explain: the Xbox line may be making money for them, but what's that success taken? A huge investment of money (that could've been invested in other areas of course) and a large focus on the product at the detriment to its other core services such as Windows. The Xbox division of MS has bought up exclusives... from their own platform, Windows. The Games For Windows Live platform was a massive failure, and this was undoubtedly largely because the company did not want it to be a success at the expense of the Xbox.

And now that the Windows OS is facing a crisis of its own, seeing this huge investment sink (i.e. Xbox) siphon up the companies time could easily be interpreted as a sign of poor priorities.

Makes perfect sense. May even be the shot in the arm it needs. Sell it to another company that's more interested in making hardware like Samsung. Fek, sell it to Apple and blow people's minds.

What were the requirements for calling yourself an analyst anyway?
The timing for this recommendation appears very poor.

An analyst is in favour of selling a division of a company that has yet to produce any net profit of its own when you consider the expenses they had to make when entering the market in the first place and to deal with the outfall of the RRoD? - Call me unimpressed.

MrWunderful:
If the Xbox one sells well, them selling the division is highly unlikely. I think that unless they loose a massive amount of money it is not going to happen.

It feels like this is a sensationalist article, aimed at getting the ravenous crowd even more foaming at the mouth.

"Look what this one guy said. The Xbox One is doomed! Please scream about it on every internet forum on the internet, k thx bye"

It's worth bearing in mind that for a good decade analysts have been wanting Microsoft to sell off the Xbox division for various reasons.

At this point Xbox is keeping Microsoft afloat, Windows is a weakening platform and it certainly doesn't look good for their future. With casual computer users shifting to the android and iOS spaces and enthusiasts and businesses steadily trickling away to Linux based OS's, Microsoft faces a very difficult few years.

PoolCleaningRobot:

Raiyan 1.0:

PoolCleaningRobot:
I'd love to see Google in the console race...

*Looks a always-on Kinect*

Yeah, what Google needs to be is even more omnipotent in user monitoring and data collection.

Whats worse, Google giving you great free services at the cost of knowing your shameful web history and spying on you or Microsoft spying on you in your house, stopping you from watching movies with too many people in the room, and making you pay for features that should be free in the first place?

How about no console that monitors you - at all? :)

TheSniperFan:

PoolCleaningRobot:
[...]Maybe if xbox did get sold to a "consumer focused" company we could actually see something good come from it.[...]

You know, it would be the first time MS did something "consumer focused" right away.
Vista, Windows 8, Windows Phone, XBone. They all show how much MS focuses on their customers.

Pretty much. Windows 8 sums up Microsoft's feelings for their customers. People complained about the new interface and lack of start menu and instead of giving customers what they want, instead they told them to deal with it because the start menu isn't coming back

Raiyan 1.0:

PoolCleaningRobot:

Raiyan 1.0:

*Looks a always-on Kinect*

Yeah, what Google needs to be is even more omnipotent in user monitoring and data collection.

Whats worse, Google giving you great free services at the cost of knowing your shameful web history and spying on you or Microsoft spying on you in your house, stopping you from watching movies with too many people in the room, and making you pay for features that should be free in the first place?

How about no console that monitors you - at all? :)

Lol. I guess that's an option...

As a fiscal analyst, I can say that Microsoft's Entertainment and Devices Division was never going to generate the market share enjoyed by its Microsoft Platform Products and Services Division or their Business Division.

Every job I've worked in the past 20+ years has used Microsoft products: From Windows 95 to Lync 2013. And with the exception of a few hobbyist Linux boxes, all of my personal PCs have been Windows based as well. That's dozens and dozens of product licenses attributed to me over a period of decades.

Conversely, I've only ever owned 3 Microsoft gaming consoles and a few Microsoft game titles. I'm sure Microsoft got a cut of the third-party titles I've bought, but I don't see Microsoft profiting as much from my gaming habits as from my professional work.

So, yeah, it's easy for an analyst to come forward and say, "Microsoft should sell their Entertainment and Devices Division because the stockholders will be pissed it's not making as much money." But a company that doesn't expand and diversify risks losing everything with one bad turn. Especially if they've already got market saturation with their core products.

Microsoft can afford to take a financial hit if the XBone fails, because their other divisions can easily take up the slack. But Microsoft cannot afford to downsize and retreat from a market simply because shareholders freak out over short-term profits.

PoolCleaningRobot:

The main thing to do would be to get rid of Steve Ballmer. Seriously, Microsoft has been going down the toilet since he was put in charge. Microsoft was worth $500 billion 10 years ago and now they're worth $250 billion. Apple made more money off iphones in 2012 than all of Microsoft's assets combined. Maybe if xbox did get sold to a "consumer focused" company we could actually see something good come from it. I'd love to see Google in the console race...

Of course xbox is probably very profitable for Microsoft so there's no way they'll sell

Which is why I'd think that Microsoft would pour every once of their once mighty developer stable into making the Xbox mind blowing for the consumers, not the shareholders. I get the basics of business, but the shareholders will not buy your product.

The Zune flopped. In the three years of the Windows Phone being a thing, I've never met anyone who actually owns one. They are gathering the pitchforks that were left over from Vista and then reused for Seven to make ballistas to attack 8. It really feels like Microsoft is just packaging stuff together, throwing it out there, and thinking that's all it will take to sell.

But who would even buy the X-Box division? Television companies wouldn't need it since they got their own devices already lined up. Nvidia could buy it up, but they'd likely change the entire direction of the console to be something that would work in tandem with the Shield and PC graphics cards. Valve could buy it up and merge steam with it to make a Xbox Steam Box...

Google could buy it up and... (remembers kinect and runs out of the room screaming).

Whatever this restructuring means get ready for more subscription based (ahem) "services". Just like how Outlook has become, just like what they've designed their Xbone to be and just like I predict they'll eventually do to their Windows OS. Because you know, share holders. They can't ever make enough money, and stuff.

Andy Chalk:
I don't think it's terribly likely

Microsoft started out as a software company with one of its major founding and guiding principals being that making and selling software is fundamentally vastly more profitable than making and selling hardware.

Sega got out of the console hardware business due to a "boardroom decision" taken on the basis of the fact software is fundamentally vastly more profitable than making and selling hardware (while they were still making and selling one of the best consoles of the that console generation i might add).

even apple actually makes most of its money selling software and in the words of it's CEO Tim Cook is "not a hardware company".

microsoft's big investors, who expect microsoft to focus on making them lots of money from its "core business" which is making and selling highly profitable software rather than borderline and often loss making hardware, have been grumbling about the xbox division for years and it probably would not exist as part of company if it was not for the fact Ballmer obsessively shares Bills "a Microsoft powered box in every home" monopolistic vision and sees the xbox as part of that vision.

but Steve Ballmer is 57 years old.

and also widely considered one of the worst CEOs in the tech industry.

leading a microsoft that is now so obviously "a follower" rather than "a market leader" that it's actually painful to watch them attempt to claim otherwise at times.

when he retires the big investors will basically get their pick of the next CEO they want to run the company (rather than it being one of "the old guard") and at that point the microsoft xbox is actually very possibly dead...or at least dead at microsoft...

so basically...the next one could very well be the last microsoft xbox...

not that it matters because imho smart phone tech is basically going to be incorporated into TVs and completely blind-side the traditional console industry...

if microsoft had any brains they be focusing on providing online software services and content delivery, making a mass penetration "must have" OS for what is currently smart phone architecture and making versions of windows people actually want to buy rather than relying on twisting our arm by using forced obsolescence as one of their primary business tactics when we don't want to buy what they're shovelling.

oh and the clock is ticking of apple just flat out deciding to sell it's own OS for PCs (where it would be yet another platform for apples digital content delivery services) and has been ever since they switched to using industry standard "PC" architecture in their own brand name computers.

CriticalMiss:
Imagine if Sony or Nintendo bought Xbox, that's a weird thought. Hell, imagine if Valve bought them. They've probably got a spare few billion lying around from sales of hats and they could combine it with their Steambox thing.

Thing is, the competition has nothing to gain from the prospect of buying it aside from, perhaps, a few IP's and the prospect of shutting down a competitor. Are either of those really worth spending, potentially, billions? In Sony's case, billions they don't have? Or in Nintendo's case, spending it on a competitor that targets customers they don't even understand how to reach anymore? Probably not.

There's really no value there aside from the name, and perhaps some software. None of which their competitors need, nor need to get rid of, at the moment.

MrWunderful:
If the Xbox one sells well, them selling the division is highly unlikely. I think that unless they loose a massive amount of money it is not going to happen.

It feels like this is a sensationalist article, aimed at getting the ravenous crowd even more foaming at the mouth.

"Look what this one guy said. The Xbox One is doomed! Please scream about it on every internet forum on the internet, k thx bye"

I'd say it has less to do with the Xbox One and more to do with the Xbox brand constantly under-performing as a whole. Let's take a look here.

The original Xbox lost Microsoft $4 billion US in its entire life on the shelves.

The Xbox 360 didn't turn a profit for 2 years and while it has profited since then, the profits have consistently dropped.

Out of MS' $73 billion in revenue from last fiscal year, $2.9 billion comes from their Entertainment and Devices Division and the Xbox brand doesn't even make up the full monty on that.

Also, the 360 is coming in 3rd this generation, another peg against the brand as a whole.

Does this info give credibility to the Analyst in the article? Not much, but considering that the Xbox brand is bad in terms of stock, Xbox being sold would not be the most shocking thing to me.

There was buzz in January this year when another analyst said the same thing pre-Xbone reveal. Why the Escapist missed the boat on that is beyond me.

But I can't see MS selling the Xbox brand yet. Not until next gen at least. The Xbone looks set up to sell like crap and I can't see MS wanted to keep losing money on the brand if they do so for a 3rd generation in a row.

Sleekit:

oh and the clock is ticking of apple just flat out deciding to sell it's own OS for PCs (where it would be yet another platform for apples digital content delivery...) and has been ever since they switched to using industry standard "PC" architecture in their own brand name personal computers.

While I would be quite happy to see this, I doubt it'll ever happen. Apple like to control the hardware they use. iOS is specifically written for the chipset in iPhones and iPads, and OSX only supports a very limited selection of hardware. This allows them to give the best software for their devices, and make a healthy profit on every part of it.

I don't see Apple suddenly adding in support for all the hardware that MS currently has to support. That's not their style.

Ugh, Analysts.

Maybe it's just the ones that get headlines but I've never seen one actually get things right.

I'll give 'em 50 bucks for it. It's 50 bucks more than they're going to see.

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