Microsoft "Kinect"ing the World - Analyst Blog

Microsoft Corp (MSFT) CEO Steve Ballmer's keynote at the Consumer Electronics Show (CES) was focused on the recent success of its motion-sensing controller, Kinect. Sales touched 8 million units in the first 60 days after launch, better than Microsoft's revised expectations of 5 million units and much better than its initial expectations of around 3 million units.

Kinect was always expected to do well, considering the publicity it has received since CES 2010. But the xBox console has also had a very good year, which increased the market for Kinect.

Kinect seeks to give the user a unique, real-life gaming experience, where gestures and verbal directions are sufficient and remote controls can be forgotten for good. Not just that, but Microsoft has extended the experience to movies and other videos currently subscribed to by xBox users through Netflix Inc. (NFLX) and Hulu.

What was not mentioned of course was that some users were already encountering problems, claiming that plugging in the device caused their consoles to break down. Users have also pointed out that the devices nearing the end of their warranty periods had been more prone to breakdowns (as per BBC reports).

No doubt this is a temporary setback, and Microsoft will be quick to rectify the situation -- especially since the company has claimed that 2011 will be the year of the Kinect.

Microsoft also unveiled the Avatar Kinect, which is expected to launch within the next few months. This is a service that subscribers of xBox Live Gold ($50 per year) would obtain free. The paying members of xBox Live are currently estimated to be around 12.5 million.

Microsoft's Avatar Kinect will allow friends to get together virtually through the Avatars representing them. The avatar will mimic the expressions, gestures and movements of the person they represent, enabling real interaction. Further, through its agreement with ESPN, Microsoft is enabling these friends to watch games together, make virtual bets and even cheer or trash-talk, as they would if they met in the living room.

We see a revolution in progress that is set to merge the gaming TV, video and other entertainment experiences.

Microsoft shares carry a Zacks #3 Rank, signifying a short-term Hold recommendation. We are also Neutral about the company's longer-term (3-6 months) prospects.

 
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