Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE): Who Wins the Game Console War?

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The thing is, Nintendo updated the Wii last year, bringing out the Wii U. Since sales have continued their downward trend, the new system obviously wasn’t well received. In fact, in January the company cut its sales projections for the device by nearly 30%. That’s a big problem for Nintendo, and exactly why investors should steer clear until it brings out something new. It doesn’t look like that’s going to happen this holiday season, though, so Microsoft and Sony Corporation (ADR) (NYSE:SNE) are the names to watch.

Media and Other Stuff

Both Microsoft Corporation (NASDAQ:MSFT) and Sony have much bigger businesses, so their new game consoles aren’t make-or-break products. Still, the Entertainment & Devices division made up about 13% of Microsoft’s top line last year and the Game group accounted for 10% of Sony’s revenues in fiscal 2013. Clearly, there are good reasons to keep a close eye these dueling device launches.

Sony Corporation (ADR) (NYSE:SNE)’s device business, which makes everything from TVs to game consoles, has been struggling for years. In fact, the division’s malaise has led activist hedge fund manager Daniel Loeb to push the company to break off its content arm, which is doing quite well, from the device division. If Sony can score a big win with the Xbox it might have an easier time silencing the dissidents.

The company’s top line has been weak since 2008 and it has lost money in each of the last three years. Although the shares have roughly doubled over the last six months or so, they remain well off of their 2008 peak. There’s still turnaround potential for more aggressive investors.

The Living Room or Bust

Microsoft, meanwhile, has also seen its shares pick up of late. That said, the shares are well off their all-time highs and remain in a decade long trading range. However, the recent price advance seems to be a recognition of the fact that, aside from a 2009 dip, sales have trending higher for a decade. While earnings have been more volatile, the company is highly profitable and has increased its dividend annually for ten years.

The company has the wherewithal to see its push into the living room through, even if it means meeting Sony on price and rejiggering the device a little before it launches. Of the two, Microsoft Corporation (NASDAQ:MSFT) has a better financial footing. The shares still have turnaround appeal for those seeking less risky fare. A yield of around 2.6% isn’t bad, either.

The War is on

With the prices out, the war between Xbox and PlayStation is on. Investors should find both Sony and Microsoft interesting, but their risk profiles are very different. More aggressive types should favor Sony Corporation (ADR) (NYSE:SNE). Investors of all breeds, however, should avoid Nintendo.

It’s been a frustrating path for Microsoft Corporation (NASDAQ:MSFT) investors, who’ve watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Nintendo. The Motley Fool owns shares of Microsoft.

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