Xbox Division To Break Off From Microsoft?

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Goldman Sachs, at one time the most respected Wall Street investment bank in the world, is urging Microsoft to shed its Xbox (and the entire entertainment division, actually) branch into its own company, and for Microsoft proper to just focus on the business, operating system and office software stuff.

Wall Street’s war on Microsoft’s “fun stuff” is nothing new. Back in June, I wrote a piece for this site detailing how several analysts interviewed (by BusinessWeek) wanted Microsoft to shed its entertainment division. The upcoming Microsoft Kinect (back then, still called Project Natal) was considered by some of the analysts has a pie-in-the-sky money wasting project. Time will tell how successful Kinect is for Microsoft.

Here are some numbers cited by Goldman Sachs. These are the reported values of each division of Microsoft:

• Windows – $107 billion
• Business (Office?) software – $99 billion
• Server software – $43 billion
• Entertainment and devices (Xbox, Zune, keyboards, mice, Windows Phone 7) – Just $3.8 billion

And it’s not just the value of the Entertainment divison. It’s constantly a loss leader for Microsoft, whose performance (or lack there of) is subsidized by the highly successful Windows, Office and Server software.

Goldman cites Oracle, which just focuses on enterprise customers, or Apple, which just focuses on consumers. (Not really absolutely true regarding Apple, but who are we to argue with Goldman Sachs!) We’d also submit IBM, who has slimmed almost all consumer products from their offerings, leaving the consumer laptop sales to Lenovo.

Goldman takes their recommendation seriously though. The Wall Street firm changed their rating of MSFT from “Buy” to “Neutral” in an attempt to influence such a spin-off.

What do you think about Microsoft spinning its Xbox and other “fun stuff” into another company? Sound off in our comments section.

And yes, there is some irony in a company that needed a $10 billion bailout from the federal government in 2008 giving advice to a company that made $13 billion in profit last year.