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Dow Jones News: IBM to Launch New Cloud, AI Products; Microsoft's Next Xbox Could Face Problems

By Timothy Green – Updated May 5, 2020 at 2:16PM

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IBM is using its Think conference to roll out new products, and Microsoft will need to contend with game delays and a sluggish economy when it launches a new game console later this year.

The Dow Jones Industrial Average (^DJI 0.85%) was rallying on Tuesday, up 1.35% by 11:20 a.m. EDT. Optimism about the reopening of the U.S. economy could be playing a role, but there are still plenty of reasons to be pessimistic in the short term. One reason: A model often cited by the White House now predicts 134,000 deaths from the pandemic in the United States, about twice its previous estimate.

Shares of International Business Machines (IBM 0.80%) and Microsoft (MSFT 1.09%) were up modestly on Tuesday. IBM is set to unveil new products at its annual Think conference, while Microsoft's head gaming executive warned about the pandemic affecting the upcoming debut of the company's new game console.

IBM bets pandemic will boost hybrid cloud and AI

On Tuesday, IBM kicked off its annual Think conference, a fully digital event this year due to the novel coronavirus pandemic. This is the first Think conference since Arvind Krishna took over as CEO, and it comes as portions of IBM's business have been roiled by the virus.

Connected lights forming the shape of a cloud.

Image source: Getty Images.

In an interview with The Wall Street Journal ahead of the event, Krishna predicted that the pandemic will dramatically accelerate adoption of hybrid cloud and artificial intelligence, two areas where IBM has invested heavily in recent years. The company's $34 billion acquisition of open-source software maker Red Hat was a mega-sized bet on hybrid cloud.

IBM is set to launch today various new cloud computing and AI products aimed at businesses. One product is IBM Watson AIOps, which automates detecting and responding to IT anomalies and integrates with products from other companies, including Box and Slack. IBM is aiming to become more partner friendly, according to Krishna.

While much of IBM's revenue comes from recurring sources, the pandemic has caused some customers to delay deals. This has hit the software business particularly hard, as many transactions tend to close in the final weeks of the quarter. New products could help, but there's no telling how long the downturn will last for IBM.

IBM stock was up 1.4% Tuesday morning. Shares of the tech giant are down about 22% from their 52-week high.

Pandemic could impact Microsoft's new game console

Microsoft is planning to release a new game console, the Xbox Series X, later this year. The launch is still on track, but the pandemic and the resulting recession has forced the company to alter its promotional approach. Microsoft will hold a series of monthly online showcases in lieu of a high-profile event, a move that could blunt demand for the new console.

In an interview with Bloomberg, Xbox chief Phil Spencer warned that sales of the new console could be impacted by the pandemic. While manufacturing the hardware in China shouldn't be much of an issue, game delays could reduce the size of the launch lineup and lower enthusiasm among gamers. Spencer said that while some work, like programming, can easily be done from home offices, motion-capture and other advanced techniques are a different story.

Another problem is the recession that the U.S. has almost certainly already entered. When the holiday season rolls around, appetite for a pricey new game console may be muted if the economy is still weak. "Families will be making different trade-offs around where their dollars are spent," Spencer said.

Microsoft is increasingly focusing on subscriptions, including its existing Game Pass service and its upcoming xCloud game streaming service, which could help the gaming business become less dependent on new hardware releases. But subscription services will still require a steady stream of new, exciting games.

Shares of Microsoft were up 1.6% Tuesday morning. The stock is just barely lower than its 52-week high, buoyed recently by a strong quarterly report.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green owns shares of IBM. The Motley Fool owns shares of and recommends Box, Microsoft, and Slack Technologies and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

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