Fool.com: Microsoft Looking At Video Games (Breakfast News) October 26, 1999

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Tuesday, October 26, 1999

"Never mistake motion for action."
-- Ernest Hemingway

Microsoft Looking At Video Games

By Dave Marino-Nachison (TMF Braden)

Reports that software giant Microsoft (Nasdaq: MSFT) is preparing for a move into the home video game console business continue to make their way into the mainstream press, as The Wall Street Journal today cited "industry executives" as saying the company could launch a new system, known as the "X-Box," next fall.

Such a step would require an enormous investment from Microsoft in terms of development and promotion. The company is said not only to envy the success that consumer electronics company Sony (NYSE: SNE) has had with its PlayStation console (more than 60 million units shipped), but also worries that the upcoming iteration of the Japanese company's machine -- the PlayStation 2, slated for a U.S. launch next autumn -- may present a considerable threat as multi-use non-PC products for entertainment, communication, and Internet access seep into consumer households.

The new PlayStation will not only play CD-ROM and DVD titles but connect to the Internet, and the graphics capabilities should be stunning. The X-Box would probably have similar capabilities, but with a twist in that the machine might play PC game titles rather than require platform-specific software to be written. Developers looking to challenge the titans of the console industry have generally found their toughest task to be finding software developers, and leveraging the existing base of PC game authors would help counteract that effect.

Sony and Nintendo have the lead in the game console market, although Sega -- which flopped in its last attempt with the ill-fated Saturn -- is trying to rejuvenate itself with its new 128-bit Dreamcast system. Dreamcast has first-mover advantage, but that didn't help Atari last time around when it launched the Jaguar system several years ago. Also cutting into Sega's momentum have been price cuts from Nintendo and Sony.

Details of the X-Box product, as reported by the Journal, are sketchy. It isn't known whether the company would market the product under its own name or another; Advanced Micro Devices' (NYSE: AMD) Athlon processor is apparently the chip of choice, beating out Intel (Nasdaq: INTC) products; and a graphics processor from Nvidia (Nasdaq: NVDA) may also be part of the mix.

One analyst told the Journal that Microsoft may use a hybrid operating system that combines aspects of Windows 98 and Windows NT rather than the CE operating system the company has developed for non-PC use. CE, interestingly, is what Sega used in Dreamcast.

And people referenced in the Journal story didn't rule out the possibility that the entire project would be scrapped -- but this talk has been around for months as more about the Playstation 2 and other upcoming gaming products has become known. Nintendo is also preparing its own next-generation system.

News to Go

Dynamic random access memory producer Micron Technology (NYSE: MU) will supply Compaq Computer (NYSE: CPQ) with memory for its PCs over the next five years in a deal industry sources are pegging as worth as much as $20 billion. The companies themselves wouldn't zero in on a dollar amount, but a Micron spokeswoman told Reuters, "We believe it is a multibillion-dollar deal."

Automated teller machines and data warehousing company NCR Corp. (NYSE: NCR) said it will cut 1,500 jobs and take a fourth-quarter charge of as much as $250 million to get out of the computer hardware business in favor of an increased focus on business software. NCR believes the move could lead to annual cost savings of about $75 million starting in 2000.

Telecommunications equipment maker Lucent (NYSE: LU) turned in fiscal Q4 EPS of $0.31, a dime better than last year and $0.02 ahead of analysts' estimates, as revenues moved ahead 23% on strong sales to telephone companies. Lucent, which is realigning into four core businesses, named Executive Vice President of Research Arun Netravali president of its Bell Labs research and development unit.

Greeting card company American Greetings Corp. (NYSE: AM) said its AmericanGreetings.com Internet subsidiary signed a three-year-plus strategic alliance to make it the exclusive online greetings provider on the Lycos (Nasdaq: LCOS) network. For more Foolish news on digital greetings, click here.

Online question-and-answer service Ask Jeeves (Nasdaq: ASKJ) said third-quarter losses were $0.35 per share, well off the year-ago $0.09 loss and a penny broader than expected by Wall Street. Revenues jumped to $6.5 million from just $113,000 a year before, but marketing, sales, technology, and other costs also leapt and will probably continue to do so.

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