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Despite hot sales, Xbox One may be a $1 billion loser

Published Nov 26th, 2013 7:00AM EST
Xbox One Profit Estimate

Despite selling more than a million Xbox Ones in less than 24 hours after launch, Microsoft is not going to make money off its latest gaming console anytime soon, prompting some analysts to advise a spin-off for the Xbox division. Barron’s points us to note sent on Friday by Nomura Equity Research analyst Rick Sherlund to investors claiming that Microsoft stands to lose more than $1 billion this year from its Xbox venture, a number that looks slightly better than the initial $2 billion Xbox One loss forecast from the same research firm.

Sherlund estimates that Microsoft will sell around 4.2 million Xbox One units, although the number may be too optimistic considering existing competition from the PlayStation 4 and early supply problems. Furthermore, in Sherlund’s opinion, the Xbox One can’t become a strong player in the entertainment business, as it faces increased competition from non-console devices including the iPhone, iPad and other smartphones and tablets that can be used for games and media consumption.

Therefore, the Xbox One would be a “good candidate to spin-off to shareholders,” Sherlund concludes. This isn’t the first time we’ve seen the analyst take this stance regarding Microsoft’s Xbox business. In previous notes to investors, he argued that the Xbox division should be sold, right alongside another cash-bleeding Microsoft business, the Bing search engine. Interestingly, rumored Microsoft CEO candidate Stephen Elop would reportedly be in agreement with these suggestions.

Not too long ago, Sherlund estimated that Android royalties may be a $2 billion a year business for Microsoft, a number he mentioned again in Friday’s note. However, such profits would not be enough to compensate for Xbox and Bing losses, as well as Microsoft’s $7 billion Nokia purchase.

For what it’s worth, Sherlund is a longtime friend of Bill Gates and has been described in a previous New York Times piece as a “point person” for dealings with Microsoft back when he worked at Goldman Sachs.

Chris Smith
Chris Smith Senior Writer

Chris Smith has been covering consumer electronics ever since the iPhone revolutionized the industry in 2008. When he’s not writing about the most recent tech news for BGR, he closely follows the events in Marvel’s Cinematic Universe and other blockbuster franchises. Outside of work, you’ll catch him streaming almost every new movie and TV show release as soon as it's available.