Back in the old days after Atari’s celebrated Pac-Man, Nintendo had total hegemony in the video game console business. The iconic Mario from Mario Bros. was a true legend. Around mid-90s, Nintendo expanded its presence with the Super Nintendo. The console was revolutionary because it was the first 16-bit video gaming console, and it was the precursor for 3D games when Super Mario RPG was developed. At that time, other consoles such as Virtual Boy and Sega Genesis (and its legend character Sonic) tried to take market share from Nintendo, but everything was in vain.
The most popular games at that time included Street Fighter II, Zelda, Megaman, Donkey Kong Country etc. These games were exclusively released for the Nintendo consoles and helped it maintain a strong presence. Thus, its sales were flying. However, everything has changed.
Microsoft Corporation (NASDAQ:MSFT) released its Xbox gaming console in 2001, and Sony Corporation (ADR) (NYSE:SNE) released its PlayStation series. Although the original PlayStation was released in 1994, it was the PlayStation 2 released in 2000 that began the console revolution. Microsoft Corporation (NASDAQ:MSFT)’s Xbox and Sony Corporation (ADR) (NYSE:SNE)’s PlayStation 2 consoles rapidly took market share from Nintendo. Nintendo tried to fight back by releasing the unsuccessful and rapidly forgotten Nintendo Wii.
The American giant developed a new version called Xbox 360 in 2005, while Sony Corporation (ADR) (NYSE:SNE) released its PlayStation 3 the following year. It is often argued on which one is better. Although most of the games are developed for both systems, I personally like PlayStation 3 because a membership is not required to play online. Microsoft Corporation (NASDAQ:MSFT)’s Live feature charges a modest ten-dollar-per-month fee that eventually adds up.
Too much history… so what?
The battle continues! Microsoft Corporation (NASDAQ:MSFT) has released the Xbox One. On the other hand, Sony Corporation (ADR) (NYSE:SNE) is set to unveil its PlayStation 4 in June at the E3 gaming conference.
Now what?
Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE)’s revenues should increase because the demand for novel consoles is always strong. Microsoft’s revenue has struggled due to its software section, but its gaming section should more than offset the effect.
Microsoft has had a constant struggle in its software section. The release of the Windows 8 proved unsuccessful. In my personal opinion, Windows 7 works great, and there is no reason for me to migrate towards Windows 8. Further, its MS Office products do not offer new features that make the transition worthwhile.
Further, the computer market conditions are worsening by the day. Intel Corporation (NASDAQ:INTC) has seen its revenue decline on a year-over-year basis because the demand for computer processor chips is decreasing. However, Intel is transitioning to tablet processor chips because the game is played by either adaptation or annihilation. Intel Corporation (NASDAQ:INTC) has opened a media section in its business which is aimed at the development of the Intel TV. However, the future is uncertain for its new project, considering several companies are way ahead of Intel regarding the development and marketing of smart TVs.
However, Advanced Micro Devices, Inc. (NYSE:AMD) may be on the brink of recovering. The stock slid from $8 a share in April 2012, to $1.50 in November 2012. However, the stock has increased 100% since late April. The Xbox One and the PlayStation 4 will utilize an eight-core AMD Jaguar processor. Advanced Micro Devices is reinventing itself, and its chances of survival look better. Without much doubt, revenue of AMD should increase and the potential for capital appreciation is huge. Advanced Micro Devices, Inc. (NYSE:AMD) should be considered for a long position.
Which console is better?
Both consoles will have the same processor and same amount of RAM memory. However, the PlayStation 4 will utilize a GDDR5 RAM memory with a bus of 5500 MHz, while the Xbox One will utilize a GDDR3 RAM memory with a bus of 2133 MHz. Although it may not look significant, loading times on PlayStation 4 will be shorter. Regarding the specifications, everything else is the same.
On the innovative aspect, Xbox One just blew it! The console features voice capabilities via a Kinect sensor. It is aimed to work together with your cable TV service and it may replace your digital cable box. In brief, the console was designed to take over your living room. The only thing that cannot be replaced in your living room (yet) by the console is your television. The new Xbox is an all-in-one console that will integrate live TV, games, movies, and web services. There is no doubt that the improved Kinect is an edge in the competition against the PlayStation 4.
So where do I invest?
There is no doubt in my mind that Microsoft’s and Sony’s revenues will increase in the interim. Since I expect both companies to fare well in the near future, you are more than welcomed to pick your poison. However, the Xbox One is not only designed for gamers, but also for non-gaming customers as an all-in-one entertainment console. Microsoft’s revenue should improve significantly.
PlayStation 4 is solely designed as a gaming console. Although its revenue should also increase, I believe the Xbox One will take a significant market share, and thus, Microsoft should be considered as a long position. As a final note, AMD is the company that will benefit the most. Both consoles have incorporated the A8 Jaguar, and its revenue should jump dramatically. AMD should also be considered for a long position.
The article Video Game Consoles: The Battle Continues originally appeared on Fool.com and is written by Robinson Roacho.
Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
