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OK, let’s do one last Xbox for HDR, before we fire the design team

Microsoft continues to push out Xbox models, with June Gaming show E3 seeing the updated Xbox One X debuted, as if it truly mattered. The Xbox has been massaged financially as a division, to pretend it actually made a profit in the odd quarter here and there, but really, it is as much folly as the Mediaroom system and the purchase of the Nokia phone business, although perhaps long term it has more potential future than its smartphone business.

At least there are some fans of the Xbox among consumers, with Halo adherents plentiful in the US, if less plentiful in any other country. The new Xbox has been talked about so far as the mysterious Project Scorpio, and it is the first Xbox to support 4K and was shown at E3 with support for 42 games, the most at any Xbox launch. It will retail for $499, £449, €499, CA$599 and AU$649. It comes with the promise that the graphical output on existing games will look even better and they will play on the new Xbox design.

Phil Spencer, head of Xbox promised to bring the number of games on it to almost 400 popular and the first quarter of delivery of this device is likely to be one of those rare quarters when Microsoft claims Xbox is profitable. It won’t be, not really, not if the R&D and its amassed past losses are properly factored in. It will ship on November 7th and it comes with support for Blu-ray and HDR for both gaming and video.

While most people have been saying that the current generation of games consoles will be the last, that has never meant that small evolutions of the existing devices would not emerge, and that’s really the case here. The problem was how to use the UHD TV sets that are shipping now in droves, and this is Microsoft’s answer. It comes with 12GB of DDR5 memory, it works with existing controllers and headsets and plays older games.

The “More Personal Computing” segment of Microsoft revenues which contains the gaming and the phones business, shows that gaming last quarter was up 4% or $78 million which suggests that it is around $1.95 billion each quarter. Interestingly software and services for Xbox, mostly Xbox Live transactions, rose 7% on the quarter, ahead of the gaming hardware.

But over the past 9 months the “More personal computing” segment is down 7% and gaming fell $136 million or 2%, which suggests a 9 month run rate of $6.8 billion. This was all about shipping 20% less Xbox hardware with software and services always rising. Xbox hardware was tired and Xbox One X will give it perhaps its last ever hardware revenue fillip, before consoles become cloud and software plus a local thin client, once networks can deliver the necessary low latency that all gamers crave, and then maybe Microsoft can finally fire its hardware R&D team and make genuine profit in gaming for the first time ever.

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