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Analyst Believes Xbox One Will Not Suceed As Entertainment Hub, Microsoft Should Sell Xbox

November 26, 2013 by Ryan Parreno

Rick Sherlund believes Microsoft should take this step for its own good, as well as Xbox’s.

Rick Sherlund has shared his latest take on Microsoft’s Xbox business following the Xbox One launch. To sum, he considers the console to be in prime shape to spin off to investors.

I need to make one thing clear before we continue: not only has Rick been following Microsoft for over twenty years as a reporter and analyst, he is a staunch supporter of the company. Few analysts are as optimistic in Microsoft as he is. Part of the reason he thinks Microsoft will do well is he is convinced the company’s sweeping changes includes pending sale of non core businesses, which include Bing and Xbox.

Now, Sherlund starts by saying he came to this assessment after getting an Xbox One himself, presumably without issues. He was even able to play Call of Duty, Forza 5, and Battlefield 4 on the console.

As head analyst for Nomura Securities, Sherlund thinks the company can sell between 3 to 4 million units in the holiday quarter. If demand does reach 4 million, he thinks Microsoft will be unable to temporarily meet demand. Either way, because console companies generally price below costs, Microsoft will lose 5 to 10 % off each sold console. Taking into account R&D and other costs, they believe the division will lose over $ 1 billion for the year.

Sherlund also expounds on Xbox One’s bigger role, presumably as an entertainment hub that will bring Microsoft to people’s living rooms. He thinks Xbox One simply won’t be able to do it. While the platform does have a particular appeal to certain households, he thinks it will not be good enough to compete with smartphones and tablets. Microsoft has better ways of competing in that space, with their own smartphone and tablet brands.

Ultimately, Sherlund compares the Xbox business to Expedia, which Microsoft took a huge loss acquiring, and, failing to find a use for it in their other businesses, ended up selling it off. Sherlund thinks Microsoft will find the same thing is true of the Xbox One, and if this comes to pass, the eventual sale of the business will be good for both Microsoft and Team Xbox.

Ironically, Sherlund is arguing Xbox won't cut it as an entertainment console, as many gamers I'm sure agree, but for this reason Microsoft should sell the division. Sherlund's arguments are more nuanced than the average fanboy rant, and for good reason. If you had shares in Microsoft, what do you think should be the next big step they should do with the Xbox One? Do you think Xbox can still make you money or not? Let us know what you think in the comments below.

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