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How the Launch of Microsoft Xbox One X Affects Its Gaming Revenues

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Nov. 7 2017, Updated 10:30 a.m. ET

Gaming revenues remain flat

Earlier in this series, we discussed Microsoft’s cloud offerings’ performance in the last quarter. Let’s see how Microsoft’s (MSFT) Xbox Software and Services segment performed in fiscal 1Q18. Although it grew 21%, it only led to 1% growth in gaming revenues.

However, the rise in Microsoft’s Xbox Software and Services revenues was counterbalanced by the decline in gaming hardware revenues. Gaming revenues stood at ~$1.9 billion in fiscal 1Q18. Xbox gaming contributed close to 20% of Microsoft’s MPC (More Personal Computing) segment’s revenues.

The MPC operating segment is highly dependent on the PC market, which explains the little to no growth in this segment. IDC reported that globally, PC shipments fell 0.5% in 3Q17.

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Upcoming launch of Xbox One X

Microsoft’s (MSFT) Xbox One X game console is scheduled to be unveiled on November 7, 2017. According to Microsoft’s CEO, Satya Nadella, Xbox One X is “the most technically advanced and powerful console ever built.” Through the launch of Xbox One X, Nadella added that Microsoft aims to pursue the “$100 billion-plus gaming industry.”

Explaining why gaming continues to be Microsoft’s focus, Nadella noted, “Gaming pushes the boundaries of hardware and software innovation, with some of the most CPU and GPU-intensive applications and content, giving us a huge opportunity in the cloud.”

Nadella added that Microsoft aims to connect “Gaming assets across PC, console and mobile and work to grow and engage the more than 53 million Xbox Live member network more deeply and frequently with new services like Game Pass and Mixer.”

Amid increased cloud and SaaS (software-as-a-service) adoption, Xbox has transformed from a console into an offering that bridges Windows 10 PCs and Xbox One machines.

Nadella noted that PUBG Corp., known for its PlayerUnknown’s Battlegrounds game, has partnered with Microsoft to “make Xbox the exclusive console at launch but is also running on Azure.” PUBG follows the game-as-a-service strategy, which means that its games could expand, enhance, and evolve over time.

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