I guess that some people in here forget that MS is actually more than Xbox.

Yes, I'm pretty sure some 6.000+ employees will cherish his e-mail forever.

He said

"Microsoft will continue to vigorously innovate and delight gamers with Xbox. Xbox is one of the most-revered consumer brands, with a growing online community and service, and a raving fan base"

and then said "its not our core" so he's saying that they're focusing on the mobile brand and cloud first

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!).

This. The Xbox brand is much less important to Microsoft than with the Playstation brand being more important to Sony. Or with Nintendo's consoles & handhelds being important to Nintendo.

Wow, I know this is VGC but the flood of doomsday nonsense is still a little surprising. Especially given that the email he sent only days ago regarding Xbox is easily viewable by anyone.

A little context would help most of you out. Microsoft is a huge company worth many times more than Sony and Nintendo combined. Not being part of the "core business" does not mean it's irrelevant or something. They have the manpower and money to still be a major contender in the market.

XBox represents what? Like 1% of their profit? 2%?

Video games are small potatoes guys. The only one that's really made any "real" big dollars from gaming the last 10 years is Nintendo during the Wii/DS heyday.

Just because Microsoft has money, doesn't mean that they're going to continue to pour it all towards the Xbox brand. As a matter of fact, Microsoft's investors have been wanting Microsoft to get out of the gaming industry ever since before Xbox One launched.

Microsoft is already thinking about laying off thousands of employees, including Xbox employees.

http://www.bloomberg.com/news/2014-07-15/microsoft-said-to-announce-job-cuts-as-soon-as-this-week.html

http://www.joystiq.com/2014/07/15/bloomberg-microsoft-said-to-lay-off-thousands-xbox-marketing-t

This is only the beginning.

The beginning of what? MS dwarfs Sony in cash reserves, ones that are practically unending thanks to Windows/Office. They're striving to become leaner, but I don't see any indication they're doing anything big to the XBox division. Nadella just said that it's a key prestige brand for MS, they don't need it to bring in money, it expands the Microsoft brand in other ways. They're already hiring for a lead engineer for the next-gen XBox. 

That can easily change, my friend. They'll most likely cancel the project for the next Xbox if shareholders want Microsoft to do so.

Plus Nadellia is doing PR speak at to not let those that bought a Xbox One get discouraged.