Inside Pulse 12

Microsoft’s Xbox Division Surges To $382m Q1 USD Profit

Microsoft’s Entertainment and Devices Division, which includes the Xbox, Zune and Windows Phone 7 divisions, profited (reg. required) $382m for the first quarter of its financial year, which is up from the $207m it made for the same period of time in 2009. The division brought in revenues of $1.79b for the quarter, of which AAA release Halo: Reach was a large contributor, with 19.6% ($350m) of the division’s revenue.

As a business, Microsoft achieved record profits, bringing in $5.41b worth of profit on the heels of $16.2b worth of revenue, up 25% from the same period of time last year.

I expect Microsoft’s games division to explode over the next year. Microsoft knows how to launch a new consumer product, dating back all the way to Windows 95. They’re using a lot of the same tactics with Kinect, including getting Oprah Winfrey involved. Due to this, I expect sales of Kinect, and resulting sales of 360 systems and other software, to be immense for the Christmas season, especially in the casual gamer market. Microsoft knows how to reach the casuals, and they’ve done just that.

After the proverbial new car smell wears off, however, I’m not too sure. Kinect is definitely casual ware, and despite reports that Microsoft has what they call “core” Kinect games in the pipeline, they’re marketing this device to the most fickle consumer: casual gaming fans who will regard it as a fad, and will be likely annoyed at the reported lag that currently exists between movement and recognition (though that can be addressed by firmware and other patches). I can definitely see the Wii’s cycle sped up for this: Kinect will be huge for a year, then the casuals will put it – and the system – away, despite a large collection of existing software for the 360 and Xbox Live Arcade. Furthermore, though they themselves are fickle, the “hardcore” market – fans of games like Gears of War – are alienated by Microsoft’s view of them, and likely aren’t going to buy Kinect for a couple of token titles, instead going with PlayStation’s Move. This is all speculation, but I’ve seen this movie before.

If I had to put on my Michael Pachter hat, I’d say buy on Microsoft until February, then look elsewhere.

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