Ballmer gets to claim a victory with Kinect after a series of disappointments in product launches by the world’s largest software firm. Its Windows Mobile software sales have been eclipsed by Research In Motion (NASDAQ: RIMM), the Apple (NASDAQ: AAPL) iPhone, and Google (NASDAQ: GOOG) Android operating systems. Microsoft’s joint venture with Yahoo! (NASDAQ: YHOO) in the search industry has shown no signs that it has cut into Google’s market share.

Microsoft’s success with Xbox shows that it can never be completely counted out of a market. Redmond spent billions of dollars to chase perennial video game leader Sony (NYSE: SNE). The Xbox now outsells the PS3 in most markets. Experts believed that when the Nintendo Wii sold better than Xbox or PS3 that it could hold a permanent lead. The Wii was considered a simpler and more accessible game system for average consumers who did not want a complicated game system.

Microsoft was able to “buy” its way into the game business with billions of dollars in R&D and marketing. The company’s electronic device sales are still only a tiny part of Microsoft’s sales. It has admitted that it needs to make and keep gains in its larger divisions which include Windows, business software, and its servers and tools division. Microsoft also believes that search is absolutely critical to its future success. Ballmer claims that his Bing search product will eventually win clients from Google.

Investors in Microsoft have kept its stock price low for a decade. Wall St. believes that Ballmer is whistling past the grave yard. Microsoft’s Windows franchise will not be dominant in the software field as consumers and businesses move from the use of PCs to portable devices like smartphones.

Ballmer is nothing if not tenacious. His energy has been misplaced some analysts would say. The company has been late to a number of the sectors where it needs to have a major presence. It is no use to try to catch Google in the mobile phone business or Oracle (NASDAQ: ORCL) in enterprise software products.

Microsoft knows that it is bleeding, although it will not admit it publicly. But, Ballmer has resources which Wall St. has largely ignored. Microsoft has one of the great R&D machines in the world. It also has Ballmer, who is a champion of lost causes.

Douglas A. McIntyre

Reuters:   Saudi investors are seeking a 10% to 15% stake in BP.

Reuters:   Microsoft Corporation (NASDAQ: MSFT) will cut a small number of jobs.

Reuters:   Borders launched an e-book store.

Reuters:   Sony (NYSE: SNE) cut its e-reader price to better compete with the Amazon.com (NASDAQ: AMZN) Kindle and Barnes & Noble (NYSE: BKS) NookReuters:   Google Inc.’s (NASDAQ: GOOG) China website is being reviewed by the government.

Reuters:   China’s AgBank priced to be the largest IPO in history.

Reuters:   ICBC, one of China’s largest banks, may raise more money.

Reuters:   KKR will probably launch its IPO in mid-July.

WSJ:   Job benefits may cause the jobless to “pickier” in the job searches.

WSJ:   Steel production in falling, a sign that the economy is slowing.

WSJ:   Apple Inc (NASDAQ: AAPL ) said an app developer fraudulently set up several hundred iTunes accounts.

WSJ:   Japanese companies are redesigning products for emerging markets.

WSJ:   Google has increased its efforts to get more marketshare for its Chrome browser.

WSJ:   BP plc said it will not issue new equity.

WSJ:   VW added to its stake in Porsche.

WSJ:   The Obama home energy efficiency program may cause problems for real estate investors.

WSJ:   The UK is cutting its budget while the US is considering increasing its spending plan.

WSJ:   The EU said Monsanto cannot stop Argentine farmers who export seed with the company’s patented formula to Europe.

WSJ:   AT Kearny and Booz called off merger talks.

WSJ:   European governments are selling more property to bring in money.

NYT;   India is expanding its role as a drugmaker.

NYT:   UK inflation could hurt that nation’s recovery.

FT:   The Walt Disney Company (NYSE: DIS) will expand its language schools in China.

FT:   The earnings for global investment banks will drop sharply.

Bloomberg:   Samsung posted a record profit on chip sales.

Bloomberg:   China will put a resource tax on oil, gas, and coal on western sections of the country.

Bloomberg:   Microsoft Xbox sales probably broke $1 billion in the company’s last fiscal year.

Douglas A. McIntyre

Microsoft has a chance to kill the Zune with a good excuse. By cutting prices on its Xbox 360 last week, it is putting pressure on the margins of its "devices" division.

In its last fiscal year, Microsoft made a little more than $400 million on revenue of $8.1 billion in the part of the company that makes and markets hardware. Those numbers seem OK, but in the two previous years the unit lost $2.5 billion. Wall St. hates the business almost as much as it hates Microsoft’s MSN online operation. Investors want the company out of areas where it looses money and has few prospects for improvement.

The Xbox 360 price cut is a sensible risk. If dropping the cost of the product picks up market share from Sony and Nintendo, the move has the benefit of moving Microsoft further along in an area where it is doing well.

The Zune is another matter. Apple’s lead is too large. The Zune is not a product which is terribly different from its competition.

Microsoft can simply say it does not want to take a bath on the Zune while it is taking a more intelligent risk with Xbox profitability.

Kill the Zune. Save some money.

Douglas A. McIntyre

Video game sales are in the home and frankly video games are perhaps one of the cheapest forms of entertainment on a dollar per hour basis there is.  Recession-proof might be a stretch.  Sales will be strong and there will still be money made by the game publishers.  But the holy grail of ‘comparable sales’ is going to be a tough one on the console makers in 2008.  Here are just some of the articles today on the bet that game sales will or won’t hold up:

• Eric Savits of Barron’s wrote "Recession? Not In The Video Game Business"
• GamePro has an article "U.S. video game industry grows 43% over last year" saying that growth won’t be the same as 2007 but will still show growth in 2008.
• Reuters notes "U.S. game sales rise 28 percent in December"
• Silicon Alley Insider notes "December Video Game Sales Up 36%, Sony’s Lead Slips"

In hardware sales saw a 63% gain for the Sony PlayStation 3, a 123% rise in the Nintendo Wii, and up 15% in Xbox 360 sales. Hand-held device sales rose 54% for the Nintendo DS and 11% for the Sony PSP.

The next assured mega-hit title coming out is Take-Two’s (NASDAQ: TTWO) Grand Theft Auto IV.  But at some point (and likely some point soon) these console sales aren’t going show the same gains like in 2007.  This notion that World of Warcraft may potentially be coming to video game consoles might add literally millions of gamers to the MMORPG craze.  All of this would be good for video games.  Electronic Arts (NASDAQ: ERTS) has its waves of upcoming releases in the year and Activision (NASDAQ: ATVI) is looking interesting in the upcoming Activision-Blizzard merger.  Microsoft’s (NASDAQ: MSFT) Bungie Studios may soon be its own public company too. Interestingly enough, we expect another merger in this sector although maybe not in the classic scenario and that has been under review for our Special Situation Investing Newsletter. 

We think that GameStop (NYSE: GME) will actually hold up better thanoverall stores like Best Buy or Circuit City based on game title salesin 2008, but there just aren’t any new major platform launches on thehorizon for maybe another two years.  That varies from person toperson, but some feel we’ll have the same gaming systems until 2011.  Our notion is that video games might actually be somewhat recession-proof.  But with $1.76 as the high part of the guidance out of GameStop, at $50.00 this still leaves its P/E at 28.4.  If the economy gets any worse than we think can then investors might not be wanting to pay that multiple after a 400% stock rise since the start of 2005.  We have been very positive on this on for some time and we don’t think it will go to hell in a hand basket.  But it will take the U.S. not falling into a recession for us to stay very positive on GameStop today and this stock has been peaking since November.  GameStop also a competitor coming on strong as well.

GameStop shares have fallen from $60+ at the start of 2008 before it gave raised guidance that the street panned and shares now sit right at $50.00 (with a $49.72 close).  An 18% slide is significant, even if it is still up 100% from the 52-week lows.

Jon C. Ogg
January 18, 2008

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If you look at how strong the data is you’d wonder how many Wii systems Nintendo could have sold if it actually had them in stock. The NPD data for the latest release shows the following console sales for last month:

• Nintendo Wii at 981,000 units;
• Microsoft Xbox 770,000 units;
• Sony PS3 440,000.

We noted how American consumers are impatient, but this might just satiate at least some of the demands.  This is actually a pretty good number for Microsoft (NASDAQ:MSFT) but shows that Sony’s (NYSE:SNE) PS3 is a dud and still considerably underperforming.

Jon C. Ogg
December 14, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

It seems that there are somewhere in the vicinity of 12 million or more Xbox 360 units on the marketplace.  When you include the Xbox 360 console sales for the upcoming holiday season and say that all titles will be the cheap $59.95 version you can see where this can quite easily generate $500 million in sales with less than 10 million copies sold.  There are always lagging sales and these Halo 3 sales will continue.  We haven’t even gotten the release for Halo 3 on PC yet, although several game store managers are not even sure if it will come for PC’s.  We think it will by late 2008, but that’s speculation.  The question isn’t IF Halo 3 hits $500 million.  It’s just how quick it happens that is a question.

If you would like to read the full official story from Microsoft you can see it on the site here.
24/7 Wall St.’s Views on Halo 3:

• First Day Disappointment? No way!
• The investor’s look into Halo 3;
• GameStop (NYSE:GME) sure went a bit far;
• Halo 3 sucks away other video game dollars;
• Halo 4 Already Coming…sort of, beyond the upcoming Halo Wars we mean!
• Take-Two’s (NASDAQ:TTWO) Grand Theft Auto delays help other game companies.

Jon C. Ogg
October 4, 2007

Predicting sequels and predicting the outcome of a mega-hit series is pretty easy if you merely follow the money.  I have no idea of the outcome of Halo 3 beyond the reviews….. Yet.  But I can follow the money, and that is simple.  There will be more Halo "money" for Microsoft (NASDAQ:MSFT).  GameStop (NYSE:GME) and Best Buy (NYSE:BBY) will be banking on it.

I have no clue if Master Chief or the Arbiter make it out of this "last" episode alive.  I would predict the Arbiter bites the dust and takes it for the home team, and Master Chief either lives or is questionable.  But….. IT DOESN’T MATTER……. This is Sci-Fi and way out into the future.  As long as some remnant of DNA exists these soldiers can be brought back.  And even then, more powerful foes and entirely unknown foes of yet can surface.

This was supposed to be Microsoft’s foray into profitability in the entire Xbox franchise. They aren’t about to permanently kill off the ticket in the bread line.

Maybe it’s the Master Chief.  Maybe it’s the Arbiter.  Hell, Maybe they both die.  It doesn’t really matter.  Follow the money!!!!!

Regardless, "Finish The Fight" can not be finished yet.

OK, I have to go get my copy of the game.

• HOW INVESTORS SEE HALO 3…..
• GameStop Outdorks the Dorks…..
• T-Minus 14-days……
• This will punish other game creators….

Jon C. Ogg
September 25, 2007

The Halo 3 retail sellers are where you have to look from the investor side, and that leaves just one pure-play: GameStop.  On August 17 GameStop (NYSE:GME) stock was at a mere $40.00-ish price with many share price closes being $39 to $41 during the market malaise.  But now shares sit at $55.28 as of Friday’s close, and are up another 1.3% pre-market Monday at $56.00.  This represents over a 30% gain, and we all know the major culprit: Halo 3.

The truth is that we saw some bang up numbers out of video game salesfrom NPD and elsewhere for the sector.  That will continue for anothercouple of months.  But after this it is going to be tough to see thestrong comparable sales.  Activision (NASDAQ:ATVI) has its "Guitar Hero3" coming next month and Take-Two Interactive (NASDAQ:TTWO) has the new"Grand Theft Auto" coming in early 2008.

Best Buy (NYSE:BBY) istoo hard to play as a stock merely for games because they sell plasmaand LCD TV’s, PC’s, PDA’s, phones, iPods, appliances, CD’s, and a fewhundred more things.  GameStop will probably surpass expectations andmay even have another stellar quarter or two going into the holidaysand early next year.  But unless the industry has kept major secretsand has many more games and systems coming out, then comparing 2008 to2007 is probably going to be very hard to with much fervor.

Afterseeing the stellar performance of GameStop stock reaching record highs,it won’t be too hard to imagine profit takers in the fold as this playsout.  This industry is very cyclical based on major game titles andconsole launches, and the 2006 to 2007 period will almost certainly endup being a record until the next major gaming upgrade cycle.  The flipside and good news for game publishers is that all the new consolessold and new graphic chips should at least keep demand high for videogame titles for months.  But there are just so many Halo games.

Ifyou want a relative discount on this Halo 3 mega-hit, GameStop has beenoffering a 20% premium on game trade-ins if the credit is used for thislaunch (expires September 30); although there may of course be somelimits there.  You might as well expect that the tech support jobs,universities, and high schools will have highly abnormal absences onTuesday and Wednesday.

• Here was the original Halo 3 coverage of last week.
• August game data from NPD was huge, with Xbox buying way up ahead of this launch.
• Here was the look a couple weeks ahead of the launch.
• These major title launches around each other can create a game title spending vacuum, although that now looks muted compared to the prior comparisons.
• You can read the Gamespot.com review or watch the video review here.

Jon C. Ogg
September 24, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the Special Situation Investing Newsletter and does not own securities in the companies he covers.

GameStop will host “Finish the Fight” midnight events on Monday, September 24, 2007, at over 3,700 of its U.S. GameStop and EB Games stores for the long and highly-awaited launch of HALO 3.  This will include Halo trivia contests and Halo 2 challenges that will lead up to the first sale of the game at 12:01a.m. If a Halo trivia contest isn’t dorky, then what on earth is?  This sure sounds dorky to this 30-something dork.  Halo fans can also check out GameStop’s “Halo Store.”  Most participating GameStop and EB Games locations will begin their countdown to launch at 9:00 p.m. local time; however, customers are encouraged to contact their local store to confirm the exact time of the event.

Schools and tech support departments around the country are probably going to have very light attendance next Tuesday and Wednesday.  NPD showed a good grab in the August sales for Xbox.

Jon C. Ogg
September 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

The Nintendo (NASDAQ/PK:NTDOY) Wii still took the lead with over 400,000 consoles selling.  The negative part of this is that this represents a 5% sequential decline from July.  And the other downside is that Wii-nies won’t be playing Halo 3 in less than two weeks like every Xbox 360 owner will be.

The Xbox 360 from Microsoft (NASDAQ:MSFT) sold over 276,000 consoles in August after announcing price cuts.  The Xbox 360 crowd is obviously looking forward to this Halo 3 record breaking launch, because even early last month it came out that Halo 3 had pre-sold over 1 million copies of its blockbuster game.

Take-Two Interactive (NASDAQ:TTWO) also won out with its BioShock game title selling 491,000 units.  Shares of TTWO are indicated higher pre-market.  Electronic Arts (NASDAQ:ERTS) Madden NFL 2008 sold 897,000 units.

While the comparables for year over year from 2007 compared to 2006 are strong, you know this is going to set a huge benchmark for 2008 that will be tough to show this same sort of growth.

Jon C. Ogg
September 14, 2007