The world’s largest software maker, Microsoft Corp. (MSFT - Analyst Report), finally announced that its next-gen gaming console Xbox One will be launched in 13 countries – U.K, U.S., Ireland, Canada, Germany, Spain, France, Italy, Austria, Brazil, Mexico, Australia and New Zealand – on Nov 22, 2013.
The new console comes with Advanced Micro Devices Inc.’s (AMD - Analyst Report) x86 octa-core processor, USB 3.0 ports, 500GB hard drive, 8GB DDR3 RAM and a blu-ray drive. It also comes with Wi-Fi that allows data exchange with other devices.
The software giant is trying to woo back gamers in the competitive environment. In the process, it has loaded the console with rich gaming features and new content, while enhancing the performance of the central processing unit by 10%to 1.75 gigahertz.
Notably, MSFT will release its Xbox One a week after Sony Corp’s. (SNE - Snapshot Report) PlayStation 4 scheduled for a Nov 15 release in the U.S. However, Microsoft will have a lead in other markets.
Both these gaming consoles are targeting the holiday season when the demand for game consoles typically increase. Therefore, a week’s time gap will not make much of a difference in the sales figures for either company.
However, Microsoft’s new console is steeply priced at $499, $200 more than the previous version launched in 2005. Sony has, however, kept the price tag of the PS4 at $399. Another competitor, Nintendo (NTDOY), has also reduced the price of its Deluxe model Wii U console by $50 to $299.99.
We believe that Microsoft may come under pressure as both Nintendo’s and Sony’s gaming consoles will be available at a lower price. Still, reports that pre-orders and first-day units at retailers have been sold out are encouraging.
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. However, the steep pricing of the Xbox One may discourage casual gamers thus affecting Microsoft’s gaming market share.
However, the emergence of mobile platforms, such as smartphones and tablets from Apple and Samsung, remains a headwind for video game hardware sales. Video game publishers are now inclined to make games that are downloadable and compatible with these devices. Both Microsoft and Sony have considered this change in their latest consoles, although their marketing was different, arousing support for Sony and discontent for Microsoft devices.
On the positive side, product transitions such as these take time and in the meantime, the huge number of existing fans will continue to generate revenues for both players. So, only time will tell whether the new Xbox One can regain some lost market share.
Microsoft has a Zacks Rank #3 (Hold).