A Big Quarter For The Xbox, But Why Is Microsoft (MSFT) In The Business?

Microsoft (MSFT) sold 4.3 million Xbox 360s in Q4. The company’s "Halo 3" game helped that. Reuters reports that the company was pleased with itself: "Holiday 2007 was a blockbuster season for the gaming industry," Microsoft said, adding that the Xbox 360 has kept its lead over rivals in terms of total dollars spent on hardware and software.

The gang from Redmond also reported that their online download system for the Xbox was broken for part of last month. That made online gaming hard and Microsoft will offer free games to make up for the glitch.

The is not the first technical problem that the Xbox has had. Earlier in 2007, some of the consoles were overheating. Microsoft took a $1 billion plus charge for warranty liabilities.

It is not hard to argue that the Xbox is not core to Microsoft’s business. It is also not hard to argue that the problems with the system hurt the overall company image at a time when it is trying to roll out Vista. The new PC OS has some problems of its own. The public relations around the firm get hurt when the name Microsoft is attached to things that don’t work well.

The company’s device division only made $134 million in the last quarter. That is next to nothing for Microsoft especially given the aggravation that the Xbox has caused.

With the Xbox bringing in so many problems and so little operating income, Microsoft should sell the operation to Sony (SNE) or Nintendo where they really are in the video game business.

Douglas A. McIntyre