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September 24, 2007

Can Halo 3 redeem the Xbox 360?

Posted by David Hunter at 1:39 PM ET.

Tonight’s the night that Halo 3, the much hyped first person shooter and successor to the wildly popular Halo 2, launches exclusively on Microsoft’s Xbox 360 and the early reviews seem quite positive. Microsoft badly needs a megahit if there is to be any hope of turning a quarterly profit sometime soon in its troubled Entertainment and Devices division and Halo 3 is the only real candidate. Via Eric Savitz at Barron’s, here’s a reading of the Halo 3 financial tea leaves:

Goldman Sachs software analyst Sarah Friar says she expects a “stellar release,” noting that Halo 2 sold 2.4 million copies for $125 million in the first 24 hours of sale. She writes that her current expected revenue contribution for the game of $170 million for the September quarter could be as much as $50 million too low. She says the company’s entertainment and devices division could push into the black in the current quarter driven by higher software sales and lower hardware costs.

Since E&D dropped about $200 million last quarter if you exclude the billion dollar band-aid, it certainly is possible. Of course, it begs the question of how long it would take Halo 3 to pay off the billion dollar band-aid as well, but then it has always been hard to consider Microsoft’s Xbox program as any sort of investment without a very long term view.

And speaking of the long term view, perhaps the most interesting effects of Halo 3 will be on the competing Sony PS3 and Nintendo Wii. I suspect the Wii will be resistant since it appeals to a different demographic, but there may be some hard times in Sony’s gaming division.

Filed under Financial, General Business, Microsoft, Xbox

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One Response to “Can Halo 3 redeem the Xbox 360?”

  1. Microsoft and Bungie agree to amicable divorce -- Microsoft News Tracker Says:

    [...] Related: Microsoft reported that Halo 3 had $300 million in sales in its first week since it was launched. I presume that is retail sales which would mean about $150 million in revenue for Microsoft. Since I figure Microsoft has about a $200 million hole to fill this quarter things look pretty good for the Entertainment and Devices Division to actually show a quarterly profit. However, Halo 3 also produced a temporary tripling in Xbox 360 sales which paradoxically may push the needle the other way depending on the efficacy of Microsoft’s hardware cost reduction efforts. [...]

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