The game itself displayed beautiful 3-D graphics, complete with realistic shadows, on the prototype Xbox console Gates unveiled to whistles and applause from the audience at the Consumer Electronics Show in Las Vegas last Saturday.
...xbox....
(made me in a way MSFT investor too; a very odd thing
to recocgnize.... I was a Nokia cluster man untile lately)
January 12, 2001
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SMARTMONEY.COM: Microsoft's X-Files
By RUSSELL PEARLMAN
(This report was originally published late Thursday.)
NEW YORK -- One of the first games Microsoft (MSFT) Chairman Bill Gates helped demonstrate on his company's much-anticipated new video game console, the Xbox, was called 'Malice.' In it, a little girl goes around squishing insects. Considering how closely that image resembles the portrait critics have painted of Microsoft's dealings with its rivals, Gates might have wanted to go for something a little less resonant.
Well, never mind. The game itself displayed beautiful 3-D graphics, complete with realistic shadows, on the prototype Xbox console Gates unveiled to whistles and applause from the audience at the Consumer Electronics Show in Las Vegas last Saturday. The characters seemed 'more animated' and the overall experience 'more movielike' than anything seen on Sony's (SNE) PlayStation 2, the current hot video game system, raves Lehman Brothers analyst Felicia Kantor. And at that, the prototype system Gates showed off had only one-fifth the capacity of the model that Microsoft hopes to ship to North America and Japan this fall.
The Xbox is creating feverish excitement among gamers, with gaming Web sites breathlessly chasing each morsel of information or rumor about the console and the games being developed for it. But should Microsoft shareholders, current or prospective, be anywhere near as worked up as they await the arrival of the new system?
Probably not. True, the Xbox could mean hundreds of millions of dollars in revenue this year. That would be great news for most companies, but it's a relative pittance for Microsoft, which will probably rake in more than $25 billion in sales for its 2001 fiscal year (which ends in June). Even if gamers are enthralled by the game console and buy up every last one Microsoft ships in 2001, don't expect the Xbox to make an impression on Microsoft's stock price. 'It's a nonexistent percentage of Microsoft,' says Sanjiv Hingorani, an analyst at Dresdner Kleinwort Benson.
And it's hard for analysts even to come up with an estimate of how big that nonexistent percentage could be. Microsoft has yet to establish a price for the console. (It's not unreasonable to assume that the console, which will come with an eight-gigabit hard drive and a broadband adapter, will have a retail price higher than the $299 Sony charges for its PlayStation 2, which has neither feature.)
Nor is anyone quite sure how many Xbox consoles Microsoft will be able to produce by the next holiday season (though that's using the term 'produce' loosely, since Microsoft is farming out manufacturing to other companies). The company certainly wants to avoid mimicking the recent supply debacle involving PlayStation 2. Thanks to a parts shortage, Sony could produce only about 1.1 million units for the North American market, well below the number it could have sold.
Whatever the sales number is, it won't likely end up being larger than $1 billion in 2001. But that's revenue. Investors want profits, and it's unlikely the Xbox console itself will earn much. Computer hardware rarely commands the same profit margins as computer software (for proof, compare the gross margin of PC manufacturer Dell Computer (DELL), at 21.2%, with that of software giant Oracle (ORCL), at 73.9%.
Of course, Microsoft thinks Xbox will make money. First, the giant of Redmond will get a royalty for each Xbox software title sold. Microsoft has lined up more than 200 game developers for the console. If the Xbox takes off, Microsoft will have a steady source of royalty sales.
But the real value of the Xbox to Microsoft is its role in the company's long-term strategy to move beyond the PC. Microsoft is nearly ubiquitous in personal computers and is making forays into hand-held computers and the set-top boxes that make televisions Internet-ready. If the video game console becomes another portal to the Internet, Microsoft doesn't want to be left out - and it certainly doesn't want to cede the market to Sony. 'You wouldn't want anyone else to control the platform,' says Mark Specker, an analyst at Wit SoundView.
But none of those ambitions will propel Microsoft's stock price higher any time soon. How the company deals with a slowdown in PC sales and its ongoing antitrust case will have much more influence on the company's share price. And since that price fell 62% in 2000, Microsoft shareholders have already had as hair-raising a ride as they could get from any video game.
For more information and analysis of companies and mutual funds, visit SmartMoney.com at smartmoney.com
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