Could Sony's PS4 Really Destroy Microsoft's Xbox One?

Yasir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The tech sector is still one of the best sectors to invest in, as tech giants try to use the latest technology to produce newer and better products. Apple, Samsung and Google are among some of the hottest tech companies at the moment, looking to give investors a decent return. The gaming segment, along with the smartphone segment, is one of the most important parts of the tech industry, and it looks set to shine by the end of 2013.

The current year is all about the two most talked about consoles: Microsoft's (NASDAQ: MSFT) Xbox One and Sony's (NYSE: SNE) PlayStation 4. Nintendo's (NASDAQOTH: NTDOY.PK) Wii U is another hot console at the moment, even though the console hasn't performed that well. Nintendo's previous Wii Console did quite well in terms of global sales; however, the company has sold just 3.45 million units of the Wii U, globally. After the big E3 event, there have been mixed opinions on whether the PS4 or the Xbox One will shine by the end of the year. 

Valuation

Sony is going through a restructuring. Kazuo Hirai, Sony's CEO, is determined to take the company in the right direction. After the company's downfall and its losses, Sony has been looking good under Hirai, not only in the gaming division but also in the smartphones division. With a market cap of over $20 billion, Sony is currently trading between $19.50 and $20.50. After the company hit below the $10 mark, Sony has been going up, mainly because of its confidence going forward. The company's fiscal year earnings ending March showed a profit of around $458 million, which is the company's first yearly profit in five years. While Sony's smartphone sales jumped by 27%, the gaming division declined as expected, mainly because of the life cycle of the PS3.

Sony's Xperia Z smartphone hit stores a couple of months back and it has been well received by consumers. Since then, the company has released several smartphones in the Xperia range and the mobile division looks like it's heading in the right direction.

Microsoft, on the other hand, is a victim of the declining PC market. Microsoft was formed as a software company, with its Windows OS being the most popular OS in the world. However, after the constant downfall of the PC market, the company gambled its future on its latest OS, Windows 8. Even though the performance and reception of Windows 8 let many people down, there is still a lot of potential to what the OS can do, from laptops and tablets to hybrid PCs.

With a market cap of over $291 billion, Microsoft is currently trading between $34 and $35. The company's recent earnings report showed a quarterly profit of around $5.11 billion. Even though the PC market fell by 13% in 2013, the Windows division showed a 23% increase in revenue.

Microsoft is primarily a software company, but it has various divisions, including the gaming division. Microsoft, after entering into the gaming market, did quite well with its Xbox and Xbox 360 consoles against market giant Sony.

Nintendo is one of the biggest names when it comes to gaming, especially because of its earlier success with consoles like the Nintendo 64. The company, with a market cap of over $12.7 billion, is currently trading between $12 to $12.5. After hitting the $17.5 mark last year, Nintendo has been on a decline and will continue to drop unless the Wii U sales pick up the pace.

The 2013 gaming war

Sony has a reputation in making brilliant gaming consoles and it is still probably the biggest brand name when it comes to gaming. Microsoft has done well in recent years and has even outsold Sony's PS3 console for several months; however, Sony's console has outsold the Xbox 360, in terms of total sales, since the release.

Sony and Microsoft held events for their much-awaited gaming consoles and the events were generally well received. However, Sony has definitely made a bigger impact at its E3 event this month. In terms of pricing, Sony has a massive advantage as the PS4 will go on sale for $399, while the Xbox One will have a price of $499. Nintendo released their Wii U console last year at $299 for the basic version and despite poor sales, the company is still charging the same price. 

Aside from this major pricing advantage, Sony also humiliated Microsoft at the E3 event on its policies. Microsoft's policies had been unclear from the start and after clearing up its policies – especially regarding second-hand or used games – a lot of fans were left disappointed. Sony, on the other hand, stated its clear policies on the ease of sharing and using second-hand games without any restrictions.

The reason why Nintendo's recent console has not performed well is because of the lack of titles. Nintendo has a very loyal fan base and the Nintendo Wii U will pick up pace by the end of 2013; however, if the company is not able to release quality gaming titles, specially key first-party titles. Apart from that, Wii U's relatively unique software might also attract some consumers. Despite poor sales, Nintendo's communications director Charlie Scibetta believes that the Wii U is in a similar position as the 3DS, when it first came out. He believes that, like the 3DS, the Wii U started slow but will pick up pace in the upcoming months, especially after software updates. 

Conclusion

Microsoft has done so well in the gaming market and has become one of the biggest brand names in the industry. The company played catch-up with Sony, but as soon as things started looking good for Microsoft's gaming division, its E3 press conference made things worse. Just by looking at what happened at the event, it should be clear that Sony is in a very good position to dominate Microsoft in the gaming market. 

For Nintendo, on the other hand, things are still not clear as the company is relying heavily on the Wii U's future software updates and upcoming gaming titles. Nintendo's incredible fan base will definitely boost its sales in the near future; however, if the company is not able to satisfy consumers with software updates or if it lacks quality gaming titles, then Nintendo's Wii U will face a hard time in this competitive gaming market. That being said, if Nintendo drops the price of Wii U before the end of the year, then it could outsell competitors as Wii U's price drop would mean a very good package for the price.

Sony, after making massive improvements under the new CEO, has already improved several of its divisions and looks set to become a leader in the gaming market, once again. Microsoft, on the other hand, is still struggling and just when it is worried about the Windows 8 OS and the decline of the PC market, it made terrible decisions in the gaming division.


Yasir Idrees has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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