Microsoft Corporation’s (MSFT) keynote at the 2010 Consumer Electronics Show (CES) held few surprises. Although management did have announcements in computing, gaming and entertainment, there was no elaboration of the cell phone strategy, which might be discussed next month at the Mobile World Congress in Barcelona.
 
Computing
 
Despite recent rumors regarding a touchscreen mobile computer called the Courier, Microsoft did not highlight the device at the CES. Instead, the company showcased a Windows 7-powered touchscreen computing device manufactured by Hewlett-Packard Company (HPQ). Microsoft has neither named the device nor revealed when and for how much it would be sold. However, it is widely expected to be multi-functional, incorporating Amazon’s e-reading and proprietary gaming software.
 
Microsoft described the Windows 7 operating system as the fastest selling OS in its history, driving a 50% jump in PC sales in the week it was launched. Holiday sales of Microsoft Windows-based computing products were also robust, with NPD reporting a 50% year-over-year growth in Windows-based PCs (as quoted by Microsoft). Considering these numbers, we would be quite surprised if the other computing devices displayed (Sony VAIO L all-in-one laptop and Lenovo A300) did not do well too.
 
Of course, one has to consider that Apple Inc (AAPL) is expected to launch a touchscreen tablet computing device later this month, which would likely bite into Microsoft’s profits. We expect others to enter the market as well, as the touchscreen hype catches on. Apple’s device could also trouble Microsoft in the gaming market, which could be partly responsible for the gaming announcements at the CES.
 
Gaming
 
As expected, Microsoft announced its new Game Room, which is basically an online version of the old-school arcade available for Microsoft Xbox and Microsoft Windows-powered PCs. Users would be able to set up their arcades according to their own preferences, purchase games for their arcade and invite friends to play. They also have the option of paying per play.
 
Microsoft is making 30 old gaming titles available for purchase once the platform launches in spring. New gaming titles such as “Tom Clancy’s Splinter Cell: Conviction”, “Crackdown 2″, “Mass Effect 2″, “Alan Wake”, “Fable 3″ and “Halo Reach” (a sequel to Microsoft’s popular Halo series) should drive revenue this year.
 
Microsoft announced that the installed base of Xbox 360 gaming consoles was 39 million at 2009-end, while the Xbox Live community went up to 20 million users. Additionally, Microsoft estimates that during the Christmas−New Year week, around 10 million people connected on Xbox LIVE’s non-gaming applications, such as Facebook, Twitter, Netflix, Last.fm, Sky, Canal and Zune.
 
Microsoft is also working on Natal, which is a gaming device employing a natural user interface that can recognize images and thus control the direction of the game.
 
Entertainment
 
The Microsoft Entertainment and Devices group also announced the convergence of computing, communications, television and Internet technologies to enrich the entertainment experience. Such conversations have been going around for a while. However, Microsoft went a step further in this case by announcing the Microsoft Mediaroom 2.0, its next generation IP TV solution especially targeted at service providers such as AT&T’s (T) U-verse.
 
While it is hard to determine the success of these initiatives given the ever-increasing competition and Microsoft’s history of bad launches, we are cautiously optimistic about Microsoft at this point of time.
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