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The world’s largest software maker, Microsoft (MSFT - Analyst Report), has launched its next-gen gaming console Xbox One in the U.S. after eight long years. The company will launch it globally later in 2013 during the holiday season. Microsoft is projecting it as an all-in-one home entertainment system.

The console comes with Advanced Micro Devices Inc.’c (AMD - Analyst Report) x64 octa-core processor, USB 3.0 ports, 500GB hard drive and 8GB DDR3 RAM and a blu-ray drive. On top of it all, it comes with Wi-Fi, which helps in exchanging data between other devices.

Microsoft’s new console seeks to become an all-in-one entertainment device. Therefore, users can enjoy live TV from cable as well as a satellite set-top box through the console. Further, users can customize the Home dashboard with their games, TV and entertainment.

The snap feature of the console allows the user to do two things at a time. It also comes with Skype where users can talk with friends and family through TV. Further, with the One Guide feature, users can easily find their favourite programs just with the help of the network, including the  time of those shows. It also comes with gesture and voice controller where one can change between games, videos, music and live TV instantly through voice commands. With all the features that it comes with, Microsoft’s Xbox One is clearly more than simply a video game.

Xbox One offers various games such as Forza Motorsport 5, Call of Duty: Ghosts, FIFA 14, Madden NFL 25, NBA Live 14, EA Sports UFC, Quantum Break, Halo television series and National Football League (NFL). Thus, Microsoft is trying to woo back gamers with rich gaming features and newer content, as well as smoothen out the severe competition that it faces from free online games. However, users cannot play any old games on the new console as the new architecture does not support them. We believe that it is not much of a shortcoming as gamers are always looking forward to newer and more exciting games.

Microsoft’s closest competitor in the game console business, Sony Corp. (SNE - Snapshot Report), has already announced its plans to release PlayStation 4 in time for the Christmas holidays. This makes sense as the holiday season is usually the time when demand for game consoles increases. Another competitor Nintendo’s (NTDOY) new game system, Wii U, was released last November.

Sony’s PS3 gained the top slot and sold 1,808,127 units in March. It was followed by Microsoft’s Xbox 360 and Nintendo’s Wii which sold 1,213,932 and 455,946 units, respectively.

A study conducted by DFC Intelligence suggests that the global gaming market will increase from $67.0 billion in 2012 to $82.0 billion in 2017. Further, IDC expects that there will be 257 million active consoles worldwide by 2015. These estimates suggest that there are opportunities for gaming companies to increase their stakes.

The overall video game market remains highly fragmented with a large number of companies increasing competitive pressure and leading to stiff price competition. Despite competition and ongoing macroeconomic concerns, we believe that companies with a greater focus on the digital content will do relatively better even in this sluggish market.

Moreover, competition from social games and the emergence of mobile platforms, such as smartphones and tablets from Apple and Samsung, have been and remain headwinds for video game hardware sales. Video game publishers are now inclined to make games that are compatible with these devices. However, on the positive side, hardcore gamers who prefer to play the games on consoles are aplenty. So only time will tell whether the new Xbox can regain some lost markets share.

Microsoft reported revenues excluding deferrals of $20.49 billion in the third quarter of fiscal 2013, which were down 4.5% sequentially but up 17.7% from last year, more or less in line with our estimates. All segments grew strongly from the year-ago quarter but declined only slightly from the seasonally strong December quarter. Microsoft’s Business Division grew both sequentially and year over year.

Microsoft has a Zacks Rank #3 (Hold).

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