Some Microsoft investors are hoping to spin-off the Xbox video game division after CEO Steve Ballmer takes retirement next year.
The reasoning behind the spin-off is that it doesn’t drive sales of the company’s other core services and software, despite the Xbox division being worth $17 billion. However, even with annual sales of $7 billion, it still is Microsoft’s low-margin divisions, and to piece it out onto a separate company could help unlock shareholder value.
“[Xbox] looks like an attractive standalone business that could hold up on its own,” said Todd Lowenstein, a Los Angeles-based fund manager at HighMark Capital Management Inc., told Bloomberg. “Seems like it would be the most mature candidate with the best growth potential and the most established to stand on its own.”
However, operating a spin-off will have its own hurdles, one of which is Ballmer’s newly instated restructuring which has seen the Xbox hardware, video games and television shows merged into one unit, while the Xbox operating system and Xbox Live moved into another.
It is unclear who will replace Ballmer as Microsoft’s new CEO. Industry watchers expect an insider to take up the job, with Nokia’s Stephen Elop reportedly being the front runner for the coveted position.
“If they choose an insider to replace Ballmer, I would say a breakup is still unlikely,”Schwartz of Schwartz Investment Counsel said. “But if they go the other route and get someone from outside the company who has an open mind and is willing to shake things up, I could see them breaking this up. It makes sense.”