Microsoft (NASDAQ: MSFT ) has been a bit cocky in regards to its Xbox 360 video
game console this year. More specifically, they have boasted high expectations
for their new hands-free controller device Kinect. Microsoft has been so
confident in the device that they predicted the device would sell 3 million
units by the end of 2011. Xbox product director Aaron Greenberg made the
confident claim that Kinect would move that large quantity at the Tokyo Game
Show last September. On Nov. 3, just one day before Kinect hit the market,
Microsoft upped the ante, saying it expected to sell 5 million Kinect
peripherals before the end of 2010. According to a press release distributed by
the company today, theyre well on their way to that goal. The Kinect has
reportedly sold 1 million units in its first 10 days on the market. The camera
and microphone array add-on for the Xbox 360 was first announced at the
Electronics Entertainment Expo in June of 2009 and Microsoft has spent the past
eighteen months promoting the device (formerly called Project Natal) to the
American public. With major promotions for the device coming from as diverse a
variety of outlets as Oprah Winfreys talk show, Microsoft has certainly laid the
groundwork for convincing the public to upgrade their motion controlled video
game system of choice from Nintendo s (PINK: NTDOY ) Wii to the Xbox 360 and
Kinect. Following four years of major Wii sales each month, both Microsoft and
Sony (NYSE: SNE )—the other major home gaming console manufacturers—have
both brought their own motion control products to market. Sonys Playstation Move
controller for the Playstation 3, released in September, has not seen the same
raw success as the Kinect but its sales are also more difficult to track. While
the Kinect is a single product available on its own or packaged with the Xbox
360 console itself, the Move is sold as a standalone item, in a package that
includes the PlaystationEye camera device necessary to use the controller, and
in a package with the Playstation 3 console as well. While Sony announced that 1
million Move controllers were shipped in September, Wedbush Morgan analyst
Michael Pachter believes the company only sold approximately 300,000 units
during that month. Microsoft has more to be proud of this fall than just the
success of the Kinect. The company is also riding a major surge in Xbox 360
sales since the release of a redesigned model of the console last June. Xbox 360
console sales have been up +37% on average each month since. While the company
has had some missteps in software releases this year—last springs Alan Wake
performed poorly, selling less than 200,000 units in its first month— Halo:
Reach , the latest entry in the companys record breaking series, sold 3.3
million copies in its first day of sales last September. It is possible that
Microsoft will win the video game market during the holiday 2010 season.
Nintendo has dominated in recent years thanks to software like Wii Fit and New
Super Mario Bros. and the popularity of their Wii and Nintendo DS consoles, but
declines in both DS and Wii sales seem to suggest that the markets for both
devices have become saturated. The Xbox 360, however, has shown great momentum
that should only be intensified by Kinect sales and the release of Activision
Blizzard s (NASDAQ: ATVI ) Call of Duty: Black Ops . While the Call of Duty
games are available on all consoles, entries in the series have traditionally
sold better on Microsofts platform. When Call of Duty: Modern Warfare 2 debuted
in November 2009, it sold 4.2 million copies on the Xbox 360, compared to 1.87
million copies on the Playstation 3. Microsoft shares dropped to $25.88 in the
past 24 hours, down -2% after a brief scuffle between shareholders, company
founder Bill Gates, and CEO Steve Ballmer. Shareholders expressed discontent
over a lack of growth in the company as both Gates and Ballmer prepare to sell
off large portions of their mutually significant stakes in the company. Some
investors and analysts have suggested that Microsoft split up the company,
particularly separating the now-lucrative Xbox division into its own company.
Given the success of Microsofts entertainment division, and the flatness of the
business overall, this doesnt seem like a terrible idea. Investors curious as to
whether or not the Xbox 360s success this fall makes Microsoft a good buy, the
answer is no. But the time is right to start preparing for a possible Xbox
company to invest in the future. As of this writing, Anthony Agnello did not own
a position in any of the stocks named here.
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