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Microsoft Xbox One at $499

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The world’s largest software maker, Microsoft (MSFT) finally announced that its newly-released Xbox One console will be available from Nov 2013 priced at $499 in the U.S., €499 in Europe and £429 in the United Kingdom.

The new console comes with Advanced Micro Devices Inc.’s (AMD) x86 octa-core processor, USB 3.0 ports, 500GB hard drive, 8GB DDR3 RAM and a blu-ray drive. On top of it all, it comes with Wi-Fi, which helps in exchanging data with other devices.

Microsoft is marketing its console as an all-in-one entertainment device i.e. users can enjoy live TV from cable as well as a satellite set-top box through the console. Further, users can customize the Home dashboard with their favorite games, TV and entertainment. The device also comes with Kinect motion sensor for gesture and voice control. With all these features, Microsoft’s Xbox One is clearly more than simply a video game console.

The software giant is trying to woo back gamers in the competitive environment. In the process, it has loaded the console with rich gaming features and new content.

However, the new console is steeply priced at $499, which is $200 more than the previous version launched in 2005. It seems that Microsoft is targeting hardcore gamers who are willing to spend any amount for new consoles. The steep pricing may keep away casual gamers thus affecting Microsoft’s gaming market share.

Microsoft’s closest competitor in the game console business, Sony Corp. (SNE), has already announced its plans to release PlayStation 4 in time for the Christmas holidays. This makes sense as the holiday season is usually the time when demand for game consoles increases. Another competitor Nintendo’s (NTDOY) new game system, Wii U, was released last November.

Microsoft may come under pressure as Sony did not disclose the price of its soon-to-be-launched PS4 and now a window of opportunity may open up for Sony to sell its console at a lower price.

Microsoft also needs to consider competition from social games. The emergence of mobile platforms, such as smartphones and tablets from Apple and Samsung remains a headwind for video game hardware sales. Video game publishers are now inclined to make games that are compatible with these devices. Only time will tell whether the new Xbox can regain some lost market share for Microsoft.

Microsoft reported revenues excluding deferrals of $20.49 billion in the third quarter of fiscal 2013, down 4.5% sequentially but up 17.7% from last year, more or less in line with our estimates. All segments grew strongly from the year-ago quarter but declined only slightly from the seasonally strong December quarter. Microsoft’s Business Division grew both sequentially and year over year.

Microsoft has a Zacks Rank #3 (Hold).

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