Call to carve up Microsoft 'silly,' says analyst

Don't dump Xbox when it's profitable, expert argues. As for Bing...

By , Computerworld |  Windows, Microsoft, Xbox

A call by financial firm Goldman Sachs for Microsoft to spin off its Xbox video game line doesn't make sense, an analyst countered today.

"I understand the reasoning behind [Goldman Sachs'] idea, but I think it's silly to spin off a profitable business," said Matt Rosoff, an analyst with Directions on Microsoft, a research company that specializes in tracking Microsoft's moves.

"Xbox would lose more than it would gain by going it alone," Rosoff added.

In a research note to clients earlier Monday, Goldman Sachs downgraded Microsoft's stock from "buy" to "neutral," lowered its earnings estimate for the company by 4%, and released a report that urged Microsoft to take several steps, including breaking out its consumer businesses into separate entities.

In an excerpt from the report published by TechFlash , Goldman Sachs analyst Sarah Friar wrote, "The Xbox products could be an appealing stand-alone entity, given the historical success of the Xbox and the products' brand strength, and the business could show unlocked value with forced cost discipline compared to as a piece of Microsoft."

Friar also criticized Microsoft's attempt to play in both the consumer and enterprise market as a "foot in both camps" strategy that prevents the company from focusing on one business.

Rosoff said he had to agree with that.

"For all of Microsoft's talk, none of the synergy between the consumer and enterprise sides has panned out," he acknowledged.

In many cases, Microsoft enters a market as a defensive tactic because it sees a threat to its core Windows business, not because that market is necessarily a good fit. "They went into the game console business because they were afraid people would buy a $300 video game machine instead of a Windows PC to play games," Rosoff argued.

The company's thinking was the same with smartphones. "Microsoft doesn't make much on phones, maybe $15-20 each [in licensing fees], but they're worried that people are buying smartphones instead of a Windows PC, and so they think 'We at least have to be in the business,'" Rosoff said.

Rosoff had his own ideas for Microsoft.

"Rather than talk about Xbox, what about Bing and its search business? That's the better question," Rosoff said. "Microsoft's there to put pressure on Google , but with Bing, the argument isn't about whether it's profitable, because it's not, but about how much can Microsoft spend, and how long they can keep spending."


Originally published on Computerworld |  Click here to read the original story.
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