Tuesday's launch of the Xbox 360 by Inside Value pick Microsoft (NASDAQ:MSFT) was a big event that many a video game fan had been waiting for. There are already stories of people having waited in the rain for the neighborhood Best Buy (NYSE:BBY) to open so that they could be among the first lucky souls on their block with the newest toy.
There are also articles and photos on the Internet describing the innards of the Xbox 360 and a weblog dedicated to the new system. In short, the amount of coverage is already staggering. I won't be picking up one of these bad boys myself for quite a while. It's been years since I played a game that wasn't PC-based, and life just hasn't allowed for a lot of game time lately. But because of the Xbox 360's ability to take advantage of high-definition television (HDTV) resolutions, I must admit that I am more curious than I normally would be.
While a number of the components of the Xbox 360 were already known, it's worth running through some of the supplier companies that stand to benefit from Xbox 360 sales, because there are certainly parties other than Microsoft that will reap rewards. First and foremost among the beneficiaries is ATI Technologies (NASDAQ:ATYT) as the provider of the graphics processing unit. In addition, IBM (NYSE:IBM) should benefit from its licensing of the PowerPC core to Microsoft, and Plantronics should benefit from providing the headsets included with the Xbox 360. Finally, obvious beneficiaries from a new high-end game platform include video game makers such as Stock Advisor picks Electronic Arts (NASDAQ:ERTS) and Activision (NASDAQ:ATVI).
For investors in Microsoft, the Xbox 360 launch won't be an immediate boon to profitability, because there isn't any money to be made in selling the console itself. Still, console sales are important, because they should lead to eventual game sales and subscriptions to Microsoft's Xbox Live service, which allows for gamers to play against other online gamers instead of just against the machine. But perhaps most importantly, the Xbox 360 provides Microsoft with another opportunity to be the platform of choice in a more computer-centric living room. (The Media PC edition of its operating system is the company's other big opportunity.)
The Xbox 360 is currently the only game system on the market that supports HDTV resolutions and constitutes a true step up from the previous Xbox, as well as the Play Station 2 from Sony (NYSE:SNE). Microsoft is in a good position to build up a solid franchise in the next six to nine months before Sony's Play Station 3 debuts. The Xbox 360's impact on Microsoft's earnings growth is potentially muted, however, because the company's games division is dwarfed in size by the company's other operations. Nevertheless, the initial reviews of the system and games are fairly positive, particularly its Xbox Live service, and this bodes well for investors -- especially since the company's shares are reasonably priced already and offer the potential for strong and steady dividend increases.
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Microsoft is a Motley Fool Inside Value recommendation. Activision, Best Buy, and Electronic Arts are all Motley Fool Stock Advisor recommendations.
Nathan Parmelee owns shares in Microsoft but has no financial stake in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.
