According to a report by BizJournals, “activist investor” group ValueAct is seeking to make some major changes at Microsoft, including firing the outgoing CEO Steve Ballmer and potentially pushing for the sale of the company’s Xbox division.
ValueAct — which spent $2 billion to gain a 1% stake in the company last April — is gathering the support of other shareholders and could be looking to gain a seat on the company’s board of directors. According to Microsoft analyst Rick Sherlund, the group’s list of grievances include Ballmer’s slow response to the smartphone/tablet market and the losses incurred in the Entertainment and Devices Division (EDD) — which houses the company’s Xbox business.
Sherlund believes that Microsoft may have no choice but to give ValueAct a seat on the board, otherwise the group could turn their agenda into a “public war.”
Gamers are unlikely to agree with ValueAct’s desire to have Microsoft sell off the Xbox, but from a purely financial viewpoint it is hard to argue against their conclusion. In building up their Xbox business, Microsoft’s EDD lost approximately $4 billion over the course of the original Xbox’s life. That trend continued for the first two years of the Xbox 360, with EDD added another $3 billion in losses, before the division turned around.
While the Xbox business been profitable in recent years, EDD’s financial contributions to Microsoft pale in comparison to the rest of the company. In fiscal year 2013 the division pulled in $848 million in profit (up from $380 in fiscal 2012), but that only accounted for 3.17% of the company’s total operating income. For comparison, Microsoft Business Division and Windows Division reported $16.2 billion and $9.5 billion in respective operating income for FY 2013.
Whether or not ValueAct decides to push for the sale of the Xbox division remains to be seen, however, this is an issue that fans should take notice of. The Xbox and Xbox 360 have left their mark on the video game industry (presumably the Xbox One will as well), but they have not been a good financial investment for Microsoft shareholders. If investors have decided that enough is enough, some big changes could be headed our way.
