NEWS - Monday, November 8, 2004

Master Chief Could Save Earth And MS

This week’s launch of Halo 2 is not only Microsoft’s most important game launch of the year - it could also drive sufficient software sales to give the firm’s Home and Entertainment division its first profitable quarter since the arrival of the Xbox. The arrival of Bungie’s sequel to the best-selling title on the platform marks a key point in Microsoft’s efforts to wrest market share from rival Sony, and will be vital to building up the company’s credibility as a console manufacturer ahead of the arrival of its next-generation platform next year. In the more immediate term, though, Halo 2 could potentially sell sufficient units to put Microsoft’s Home and Entertainment Division, which houses the Xbox project, in the black for the December quarter according to comments attributed to Wedbush Morgan analyst Michael Pachter in a Mercury News feature. The division has lost several billion dollars on the Xbox project to date, making Microsoft’s struggle to gain a foothold in the games industry into an extremely expensive venture, and in the most recent quarter showed losses of $273 million. However, Halo 2 could easily sell around five million units according to Pachter’s estimates, generating around $200 million in sales for the division, while if half of the Xbox installed base buys the title, sales could reach $400 million. Almost 1.5 million units have already been pre-ordered in North America alone, according to some estimates. Combined with the falling cost of manufacturing the Xbox hardware, this could be enough to drive the division into profit for the quarter - although perversely, stronger Xbox hardware sales make profitability harder to reach, since the company is still believed to be making a significant loss on each hardware unit sold. If Microsoft can manage to give the Home and Entertainment division at least one quarter in the black, it will be a major coup for the company - which has been criticised by some commentators for gaining only a 15 per cent market share of the games industry while continuing to make significant losses on the Xbox every quarter.


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