| kowenicki said: Way to spin this negatively. Did any of you actually read his full email to employees? Stop reaching fellas. |
What spin is even necessary when the CEO is fundamentally distancing the Xbox division from their 'core'. He's outright calling it 'non-core' by default.
The timing makes all of this completely obvious. Launching a console is hellishly expensive in any event, but in the case of the XBO it was wildly ambitious, came with a gargantuan marketing campaign, suffered from overproduction and channel overload, has run aground globally in 2014, and that's not even scratching the surface of the NFL licensing, patent/legal expenses, 3rd party funding, yadda/infinity.
The investors are preparing to pick over the MS financials with a fine tooth comb shortly, and Satya is laying the groundwork for a 'hey, that's not important' moment in advance.
Gross margins were down in the division recently by 34%, which encompasses Xbox and consumer electronics. It was attributed to the BOM cost of XB1 + Kinect @ $499. Since then we've had $449 sales (at this point these sales are ALWAYS subsidized by the mfg to avoid retailer revolts), and now $399 bare SKU. Due to mfg commitments, even with Kinect absent from the box, there is still a BOM impact because the suppliers in China have to be compensated for contractual obligations.
Expect margins to sink lower than previous, due to the combination of 360 software/hardware/Live declines, and lower than predicted XB1 sales overall. Operating income will also take it on the chin in this area.
From a raw numbers perspective, MS as a whole is doing absolutely fine. Most companies on earth would LOVE to be in MS's shoes, Sony @ large included.
However, Xbox as a component of Microsoft is not a finanical success, and strategically is beginning to become incongruous with their newly minted 'mobile/cloud-first' plans, in reference to the tried and true home console business. XB1 isn't cracking the doors open to challenge Apple/Amazon/Smart TVs, and doesn't look like it ever will. The paywalls are down anyway, so many optimistic charts have been binned that plotted their XB1 era.
People like to point at 360 making a profit for a time, which is true to some extent (how much so depends on how much credit you give to the estimated ~2B annual Android royalties income, a sweet effortless cash flow they can use to mask losses). But the facts remain that the best 360 years were less than 1/3B in profits, while the worst 360 years had losses that in 4 quarters alone dwarfed all 360 profits COMBINED. And that's not even touching the OG years.
If Microsoft wants to salvage the Xbox brand name, they can start affixing it to Windows 9 game store, Windows Phone game store, etc. Done right, they could start gaining on Steam honestly if they bring the right things to the table (portable gaming apps that are playable on phone/PC/tablet/XB1, and real controller support across the board). Leveraged properly and with an emphasis on software/cloud services, gaming could make them billions.
Devices have always failed them, while software/licensing/business have always brought them exceptional success.
The writing is on the wall, these are the first clues, and to anyone long paying attention, they are loud and clear : Xbox as it stands, and has been planned for a decade+, is a dead man walking. It's Raison d'être was to stem a challenge to their home supremacy that would come from the living room. That threat has never materialized. Nobody is going to replace Microsoft Office on an Amazon Fire TV or Apple TV. People aren't going to want to edit vacation videos on their PS4s. It's an entire idea based on a flawed understanding of what the future held. Microsoft is being consumed by MOBILE. Phones are slowly but surely eating into their bottom line as more people are tied to pricey phones and tablets with declining inflation-adjusted incomes, which is only accelerated by the 'status-symbol' identity that many younger potential customers attach to such devices. 5 years ago someone in college might show off their Macbook Air at Starbucks, now everyone is desperate to show off their iPhones and Galaxy phones.
In the office and backoffice, they're safe for the time being. At home, the PC is slowly dying, and they can save it by making Windows BETTER. One of the ways they can do this is by reversing the self-destructive abuse of Windows gaming in the fruitless and unprofitable chase to make Xbox consoles a success. Halo, Gears, Forza, etc can make them billions on PC/etc, with zero hardware costs/risks. All while shoring up home users to keep their Windows PCs (and maybe even connect more of them to TVs!).
