Is XBox One A Catalyst To Consider As Ballmer Retires From Microsoft?

Chris Lau, Kapitall: Will the Xbox One help Microsoft in the wake of CEO Steve Ballmer's departure, or does it not matter?

When Steve Ballmer retires from Microsoft ( MSFT ), opinion will be mixed. The CEO led Microsoft successfully, by growing sales and share price. What he failed to do quickly was position Microsoft as a credible devices and services company.

Click on the interactive chart to see MSFT quarterly sales and market cap compared.

So where next from here? Two things that will likely weigh on Microsoft after Ballmer retires are the Surface tablet and the phone division.

Tablet strategy

Microsoft’s Surface strategy has yet to play out successfully. The initial Surface RT was not as popular as they had hoped, and the company needed to write down much of the hardware inventory. But the Surface 2 and Surface Pro 2 were recently launched, and could find greater success.

Lumia unit purchased

When Microsoft closes its purchase of the Lumia division from Nokia ( NOK ), it will have full control of the smartphone’s development. Profitability could remain a challenge, but Microsoft appears to be willing to act aggressively to grow market share.

Together with the Lumia 1520 tablet launch, Microsoft could start to gain inroads in the mobile space. In Q3, Microsoft more than doubled its sales compared to last year. It now has 3.6% of the worldwide market:

smartphone sales

Source: Gartner

Software remains strong

Ballmer also leaves behind the Office and Server software divisions. In the most recent quarter, Office product sales grew 11%. Cloud applications are becoming increasingly prevalent, and important, which means Google’s (GOOG) Docs will likely become a more competitive threat to Microsoft’s Office 365.

And the company’s SQL Server continues to be strong. Its next version, SQL Server 2014, will offer in-memory and cloud capabilities.

These features are necessary for better performance and supporting hybrid scenarios. Big data, a theme we’ve explored on this site, and which continues to gain in importance, will be addressed through Microsoft’s Windows Azure HDInsight.

Xbox unit

In hardware, Xbox sales have been strong. The release this week of Xbox One could support the momentum, but the unit has a history of losing money for Microsoft. Microsoft’s profitable divisions supported Xbox in the past.

Ultimately, if Microsoft’s next CEO sells the division, this could be a positive catalyst for a higher share price. Not to mention the knock-on effect it could have on other console makers like Sony (SNE) and Nintendo (OTC:NTDOY)

Learn more with our  Infographic: Next Gen Gaming with New Xbox One and PS4 Consoles

Click on the interactive chart to see price data for these console makers over time.

 

(Written by Chris Lau, a Kapitall Writer. Quarterly sales, market cap and stock price data sourced from Zacks Investment Research.) 

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