Call to carve up Microsoft 'silly,' says analyst

Don't dump Xbox when it's profitable, expert argues. As for Bing...

A call by financial firm Goldman Sachs for Microsoft to spin off its Xbox video game line doesn't make sense, an analyst countered today.

"I understand the reasoning behind [Goldman Sachs'] idea, but I think it's silly to spin off a profitable business," said Matt Rosoff, an analyst with Directions on Microsoft, a research company that specializes in tracking Microsoft's moves.

"Xbox would lose more than it would gain by going it alone," Rosoff added.

In a research note to clients earlier Monday, Goldman Sachs downgraded Microsoft's stock from "buy" to "neutral," lowered its earnings estimate for the company by 4%, and released a report that urged Microsoft to take several steps, including breaking out its consumer businesses into separate entities.

In an excerpt from the report published by TechFlash , Goldman Sachs analyst Sarah Friar wrote, "The Xbox products could be an appealing stand-alone entity, given the historical success of the Xbox and the products' brand strength, and the business could show unlocked value with forced cost discipline compared to as a piece of Microsoft."

Friar also criticized Microsoft's attempt to play in both the consumer and enterprise market as a "foot in both camps" strategy that prevents the company from focusing on one business.

Rosoff said he had to agree with that.

"For all of Microsoft's talk, none of the synergy between the consumer and enterprise sides has panned out," he acknowledged.

In many cases, Microsoft enters a market as a defensive tactic because it sees a threat to its core Windows business, not because that market is necessarily a good fit. "They went into the game console business because they were afraid people would buy a $300 video game machine instead of a Windows PC to play games," Rosoff argued.

The company's thinking was the same with smartphones. "Microsoft doesn't make much on phones, maybe $15-20 each [in licensing fees], but they're worried that people are buying smartphones instead of a Windows PC, and so they think 'We at least have to be in the business,'" Rosoff said.

Rosoff had his own ideas for Microsoft.

"Rather than talk about Xbox, what about Bing and its search business? That's the better question," Rosoff said. "Microsoft's there to put pressure on Google , but with Bing, the argument isn't about whether it's profitable, because it's not, but about how much can Microsoft spend, and how long they can keep spending."

Other recommendations by Goldman Sachs' Friar got the nod from Rosoff, including boosting the dividend the company pays stockholders. Friar urged Microsoft to "materially increase" its dividend to make its stock more attractive to a larger number of investors.

"Microsoft should do that," Rosoff said. "Their cash flow is outstanding, and with the amount of revenue they generate, they could increase the dividend significantly."

Last month, Microsoft announced a quarterly dividend of 16 cents, a 23% increase over the previous quarter.

"They might be increasing it gradually," speculated Rosoff, pointing to the September dividend boost.

Join the Good Gear Guide newsletter!

Error: Please check your email address.

Tags Management and CareersapplicationsMicrosoftWindowsgoldman sachssoftwareoperating systemsinternet

Our Back to Business guide highlights the best products for you to boost your productivity at home, on the road, at the office, or in the classroom.

Keep up with the latest tech news, reviews and previews by subscribing to the Good Gear Guide newsletter.

Gregg Keizer

Computerworld (US)
Show Comments

Essentials

Lexar® JumpDrive® S57 USB 3.0 flash drive

Learn more >

Microsoft L5V-00027 Sculpt Ergonomic Keyboard Desktop

Learn more >

Mobile

Lexar® JumpDrive® S45 USB 3.0 flash drive 

Learn more >

Exec

Lexar® Professional 1800x microSDHC™/microSDXC™ UHS-II cards 

Learn more >

Audio-Technica ATH-ANC70 Noise Cancelling Headphones

Learn more >

HD Pan/Tilt Wi-Fi Camera with Night Vision NC450

Learn more >

Lexar® JumpDrive® C20c USB Type-C flash drive 

Learn more >

Budget

Back To Business Guide

Click for more ›

Most Popular Reviews

Latest News Articles

Resources

PCW Evaluation Team

Azadeh Williams

HP OfficeJet Pro 8730

A smarter way to print for busy small business owners, combining speedy printing with scanning and copying, making it easier to produce high quality documents and images at a touch of a button.

Andrew Grant

HP OfficeJet Pro 8730

I've had a multifunction printer in the office going on 10 years now. It was a neat bit of kit back in the day -- print, copy, scan, fax -- when printing over WiFi felt a bit like magic. It’s seen better days though and an upgrade’s well overdue. This HP OfficeJet Pro 8730 looks like it ticks all the same boxes: print, copy, scan, and fax. (Really? Does anyone fax anything any more? I guess it's good to know the facility’s there, just in case.) Printing over WiFi is more-or- less standard these days.

Ed Dawson

HP OfficeJet Pro 8730

As a freelance writer who is always on the go, I like my technology to be both efficient and effective so I can do my job well. The HP OfficeJet Pro 8730 Inkjet Printer ticks all the boxes in terms of form factor, performance and user interface.

Michael Hargreaves

Windows 10 for Business / Dell XPS 13

I’d happily recommend this touchscreen laptop and Windows 10 as a great way to get serious work done at a desk or on the road.

Aysha Strobbe

Windows 10 / HP Spectre x360

Ultimately, I think the Windows 10 environment is excellent for me as it caters for so many different uses. The inclusion of the Xbox app is also great for when you need some downtime too!

Mark Escubio

Windows 10 / Lenovo Yoga 910

For me, the Xbox Play Anywhere is a great new feature as it allows you to play your current Xbox games with higher resolutions and better graphics without forking out extra cash for another copy. Although available titles are still scarce, but I’m sure it will grow in time.

Featured Content

Latest Jobs

Don’t have an account? Sign up here

Don't have an account? Sign up now

Forgot password?