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Microsoft (MSFT) Gears Up for the Next Gen Console Wars

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We are likely less than a year away until tech giants Microsoft (MSFT - Free Report) and Sony (SNE - Free Report) are expected to launch their next generation gaming consoles. The two companies are expected release the PS5 and Xbox Series X sometime during the fourth quarter of 2020.

The identical timelines pit the two companies in direct competition, a similar situation to the release the Xbox One and PS4 in Q4 of 2013. Microsoft has its sights set on boosting its gaming business that has struggled to gain traction lately. Let’s take a look at how the tech giant is gearing up for the console wars in 2020 against Sony.

Xbox Series X

Microsoft is looking to blow its previous model, the Xbox One, out of the water with its upcoming console. The head of Microsoft’s gaming division, Phil Spencer, stated that “the power of the Series X GPU will be twice that of 2017’s premium Xbox console.” The gaming chief went on to say that the overall processing power will be four times higher than what the company's current high-end console delivers.

The premium console, the Xbox One X, runs on two of Advanced Micro Devices’ (AMD - Free Report) chipsets. These chipsets gave the Xbox One X a total compute power of 6 teraflops, compared to 1.3 teraflops for the original Xbox One.

While Microsoft hasn’t reveled the official hardware specs for the Xbox Series X yet, rumors suggest that it will run a custom eight-core version of AMD's new Zen 2 CPU at about 3.5 GHz alongside a custom Navi GPU, which would potentially bring its total computing power to about 12 teraflops.

However, these expected improvements to the new console are not projected to be cheap for consumers. Microsoft's current high-end Xbox model, the Xbox One X, hit the market at a price of $500 in late 2017. If the company plans for major improvements in the next generation console, it may result in a hike in its retail price. Sony’s PS5 is projected to launch at a price of about $499, which would be a $100 hike from the PS4 debut at $399.

Microsoft elected to lower the One X’s bundle down from $500 to $350 as some consumers thought the set price was too high. Sony’s Playstation 3 in 2006 and the Xbox One in 2013 both had trouble selling at price points north of $400. This issue might also limit the initial success of the Xbox Series X if the company were to debut the console at a pricey level.

Outlook

However, nothing is set in stone in the Series X’s price point, and Microsoft may find a way to pack all the powerful features into the new console while keeping the retail price at a moderate level. One-way investors believe Microsoft could pull off an expensive console is by pairing it with its subscription services.

Microsoft employed a similar strategy with its One X console through its All Access subscription service. The company has an All Access plan that includes an Xbox One X console at monthly payments of $31 over 24 months.

Some analysts believe that Microsoft could employ a similar strategy for the Series X. This could bode well for Microsoft as it would bring customers into its ecosystem and secure subscription service revenue that can fuel the firm’s top-line for years to come. Microsoft is likely well aware that a high price point could limit the initial success of the console, which could make an installment plan type of option a reality.

Bottom Line

Microsoft is determined to cement itself in the gaming industry with its next generation console but the advancements in the console may send its price soaring. The company saw its Xbox software and services decline 3% (GAAP) in Q4 fiscal 2019, and fall flat in its most recent quarter. Microsoft hopes that its new console can provide a boost to its sluggish sales and establish a lead over Sony in the growing gaming industry.

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