Microsoft Corporation Xbox Chief Phil Spencer Sheds Light On Topics Ignored At E3

In an interview with The Wall Street Journal, Microsoft Corporation’s (NASDAQ:MSFT) Xbox Chief, Phil Spencer, spoke about the HoloLens, Xbox sales in China, how the gaming industry has evolved with the introduction of the 1TB Xbox One, and other information not mentioned during the company’s E3 conference. Here’s what the expert had to say.

Microsoft recently acquired the popular and creative block building game Minecraft, and used it to demonstrate the capabilities of the HoloLens, at this year’s E3 conference. The HoloLens was mainly marketed as a product that is expected to increase productivity and communications. Mr. Spencer explained that Microsoft is still working hard to find the “sweet spot for different scenarios”.

Productivity is still the main priority for the HoloLens, Also, being at E3, it was only fitting to demonstrate it with a game and Minecraft was the most authentic option. The HoloLens will target various segments of the market, when launched. “It’s hard to name a consumer-electronics device today, where games aren’t an important content category — whether it’s your phone, a tablet, [or] obviously PCs game consoles.” Mr. Spencer explained. The Minecraft HoloLens demonstration can been watched here.

Microsoft has been giving significant importance to its mobile gaming industry, and has invested a lot, given that console and PC games are a major part of its portfolio. Mr. Spencer explains that the reason for doing do so is that people who play these small mobile games develop addiction to them, and in other high quality games with time. He uses the "Angry Birds" franchise as a prime example. Angry Birds started off initially on mobile devices, and became so popular that it then appeared on the consoles. According to Mr. Spencer, just getting more people playing video games is “good for business”.

The launch of the 1TB Xbox One is also a sign of how the market has shifted away from physical discs towards digital storage. People have long been expanding digital storage capacity by plugging in a USB hard drive, even before the launch of 1TB consoles, which signifies the evolution of gaming. “Every game that’s released at retail is digital,” Mr. Spencer said, further stating that, “Being able to sell games directly through the dashboard and seeing that people want to buy them is important, so one of the reasons, we make a bigger hard drive is we’re seeing the adoption of digital purchases and we want to make that possible.”

Mr. Spencer also gives his view on why Microsoft has chosen to partner HoloLens with other Virtual Reality headsets like Facebook Inc.‘s (NASDAQ:FB), Oculus VR, and Valve’s and HTC’s Vive. “They’re different technologies. When you put on the Oculus you don’t see anything in the real world. It’s completely black,” he said.

Oculus had a head start on Windows, partnering to make Windows 10 the best platform for virtual reality is a logical choice.

The Chinese market isn’t as fruitful as expected for Microsoft, but Mr. Spencer is optimistic about future prospects. He claims that the company is going through its maximum sales since its foundation. There is also a major Chinese gaming conference scheduled in July, with Xbox as a major part.

Deutsche Bank Reiterates Buy Rating On Microsoft Corporation (MSFT) Stock

According to a research note published on Wednesday, Deutsche Bank has reiterated a Buy rating on Microsoft Corporation (NASDAQ:MSFT) stock with a price target of $55. The sell-side research firm hosted a lunch meeting on Tuesday with approximately 20 investors to exchange insights on Microsoft.

Deutsche Bank noted that the stock has been trending down modestly after hitting a peak of $49 in late April. The firm believes that the downward trend is due to unusual strong move in the stock, following the March quarter results as well as recent weak PC market news. The investors mostly focus on cloud transition, the state of the PC market, and how the stock would react if Microsoft was to acquire Salesforce.com, Inc. (NYSE:CRM).

The bull case focuses on the cloud transition story, with Office 365 and Azure now providing 7% of the revenue mix and growing more than 100%. The operating expense story and the stability of Microsoft’s Server product revenue were mentioned far less in the bull scenario. The bulls also argued that the pending Windows accounting change and associated GAAP earnings per share (EPS) cuts are in the stock already, as are weak PC market trends.

The bearish side of the investors focuses on near-term and secular PC growth concerns with consensus view mixed at best, without any Win 10 lift in the second-half of 2015. The bears also discuss skepticism about the cloud transition, mostly saying that is it a drag on margins or will it cannibalize on-premise workloads. The bears also question about Office 365 growth being offset by the decline in traditional license Office.

Deutsche Bank analyst, Karl Keirstead stated, “We conclude that the weak PC market is largely in the stock (the PC-centric Windows OEM business is now just 12% of MSFT’s rev mix), the cloud transition story is additive and will lift sentiment for some time.” He further added that Microsoft’s valuation multiple will appear more reasonable to the skeptics as EPS growth recovers in fiscal-year 2016 (FY16).

According to Bloomberg, 23 analysts rate Microsoft stock a Buy, 14 recommend it a Hold, and only seven tag a Sell. The consensus 12-month price target on the stock is $49.9 showing an upside potential of 9.6% on the current trading price.

The stock is currently trading down 0.87% at $45.43 as of 1:06 PM EDT. Since the start of the year, the stock experienced a decline of 3.42% with an average daily trading volume of 29.27 million shares.

Microsoft Corporation Shakes Up Leadership Team

In an e-mail to employees, Nadella said the change will allow Microsoft to “deliver better products and services that our customers love at a more rapid pace.”

He also emphasized that Microsoft has three interconnected and bold ambitions: (1)reinvent productivity and business processes,(2) build the intelligent cloud platform, and (3) create more personal computing.

Changes to Microsoft senior leadership team

According to Nadella, he made a decision to organize Microsoft’s engineering efforts into three groups to work together to deliver on the company goal and strategy.

Terry Myerson will lead Windows and Devices Group (WDG), which combines the engineering efforts of the current Operating Systems Groupo and Microsoft Devices Group (MDG) led by Stephen Elop.

According to Nadella, the WDG brings together all the engineering capability required to drive breakthrough innovations that would bring the Windows ecosystem forward. It would also position Windows as a service across Microsoft devices including Lumia, Surface, HoloLens, Surface Hun, Band, and Xbox.

Scott Guthrie will continue to lead the Cloud and Enterprise (C+E). The team is focused on building the intelligent cloud platform of Microsoft. It would also concentrate in building high-value infrastructure and business services that are unique to customers such as data, analytics products, business processes, security, and management offerings.

The Dynamics products development teams will join the C&E team to accelerate further the company’s work on ERP and CRM.

Qi Lu will continue to lead the Application and Services Group (ASG), which is focused on reinventing productivity. The team is leading the development of productivity services for digital across all devices. Nadella said Microsoft’s engineering efforts to build a solution for education would be transferred to the ASG team.

Stephen Elop retires

Nadella also announced that Stephen Elop’s retirement. Elop led the Operating Systems Group and Microsoft Devices Group when he returned to Microsoft after its $7.2 billion acquisition of Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V)’s devices and services business.

“Stephen and I have agreed that now is the right time for him to retire from Microsoft. I regret the loss of leadership that this represents, and look forward to seeing where his next destination will be,” said Nadella.

Three other executives including Kiril Tatarinov, Eric Rudder, and Mark Penn also decided to leave Microsoft to explore other opportunities.

Behold Kingdom Hearts Unchained: a mobile port of a browser game

Square Enix released a gameplay video of Kingdom Hearts Unchained at E3 2015. The mobile game is a port of the Japanese-only browser game Kingdom Hearts X. The story is connected to the Keyblade War mentioned in the new footage of Kingdom Heats 3.

The gameplay features Final Fantasy characters alongside Donald Duck, Mickey Mouse, Hercules, and many others. Kingdom Hearts Unchained will appear on iOS and Android, but no release date has been announced.