Everything Microsoft | Going Beyond Windows

Microsoft this afternoon released new data on Xbox 360 results, saying that cumulative worldwide sales of the video-game console have now reached 28 million units. That's up from roughly 25 million before the holiday shopping season. Based on its estimates, the Redmond company says it expanded its lead over Sony's PlayStation 3 to a margin of 8 million units worldwide.

Nintendo's Wii remains the runaway leader in the market, with more than 45 million units sold, according to this VGChartz.com tracker.

Earlier reports said the higher-priced PlayStation 3 struggled during the holiday season. But the growth seen by Nintendo and the Xbox 360 also seem to confirm the theory that video games, overall, are well-positioned to weather the global economic turmoil.

Microsoft's Aaron Greenberg said 2008 was the biggest year in Xbox history. In addition to growth in console sales, the company says it now has more than 17 million active users of its Xbox Live online gaming service, up from 14 million in October, while consumer spending through the company's Xbox Live Marketplace was up 84 percent year over year.

We'll post numbers from Sony and Nintendo as they're available.

Update: Here's a statement Sony issued this afternoon from Ian Jackson, VP of Sales, Sony Computer Entertainment America:
 
"We've had a solid holiday season and have delivered consistent growth throughout this year. 2008 was a pivotal year for PlayStation with the best software line up in the industry, a dramatic expansion of PlayStation Network including the launches of the video delivery service and the beta of the PlayStation Home, as well as extended hardware offerings with the PSP 3000 and Uncharted 160GB PS3 bundle. Early internal data points to an increase of more than 130 percent of PS3 hardware sales for the holiday season (since Black Friday) and we’re also seeing a growth of nearly 40 percent in total PS3 hardware sales for the calendar year. We remain confident this momentum will continue into the new year.”
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San Francisco-based Xobni, the email startup co-founded by ex-Expedia employee Adam Smith, has pulled in $7 million in venture financing from Cisco Systems, Khosla Ventures, First Round Capital, Baseline Ventures and Atomico.

Maker of an Outlook plug-in which helps people organize email, Xobni was dubbed the "next generation of social networking" by Bill Gates in a keynote talk last February. So the question is: Why is Cisco leading the round rather than Microsoft?

According to TechCrunch, Microsoft made an unsuccessful run at Xobni last year for about $20 million, a deal that collapsed because -- as Erick Schonfeld reported -- Xobni's leadership grew increasingly uncomfortable "about its eventual fate inside the Microsoft machine."

Meanwhile, GigaOm reports today that Cisco's investment in Xobni is part of a "continuing tussle against Microsoft over the concept of collaboration."

Xobni's service -- which competes with the Paul Allen-backed startup Gist -- has been downloaded more than 1.5 million times and is now being used by Fortune 500 companies.

It doesn't appear as if there is any bad blood between Xobni and Microsoft, since Xobni co-founder Matt Brezina told Inman today that they have been working closely with Microsoft developers and product managers. The company also is a member of Microsoft's Accelerator program.

"They've been good to us," Brezina tells Inman.

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Apart from which new technologies will be unveiled, the big question at the Consumer Electronics Show each year is which aging celebrity Microsoft will trot out in an attempt to add some star power to its keynote. With Bill Gates now absent, and CEO Steve Ballmer appearing in his place, it would be surprising if the company didn't do the same this year.

So who will it be? To help inform your speculation, here's a look back at some of the celebs Microsoft brought on stage at the show in the past.

2001: Actor/wrestler Duane "The Rock" Johnson joins Gates on stage with the newly unveiled Xbox, resulting in scripted banter such as this ...

THE ROCK: Both The Rock and Bill Gates are best selling authors. And both The Rock and Bill Gates are known worldwide for their vast array of catch phrases. For example, The Rock has, know your role and shut your mouth, lay it the smack it down, and of course, the world renowned, if you smell what The Rock is cooking. And, Bill Gates, you have some pretty cool catch phrases, as well. What are some of your favorites?

MR. GATES: My favorite is probably writing hardcore C to create slick, tight code.

2004: Jay Leno, most famous in Microsoft circles for his role at the Windows 95 launch, resurfaces at CES to help Gates unveil products including the company's latest MSN Broadband version.

2005: Another NBC late-night host, Conan O'Brien, appears at CES with Gates to do the keynote in a talk-show format. But the evening was most memorable for a recurring glitch during one of the product demos.

2006: Microsoft brought out boxing sportscaster Al Bernstein to call a video-game bout between Gates and Ballmer. Hate to spoil the secret, but the Microsoft execs weren't actually controlling those fighters.

(Photo credits: Microsoft)

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Goldman Sachs analyst Sarah Friar this morning weighed in on the two biggest rumors swirling around Microsoft recently: Will there be a Zune phone announcement at the Consumer Electronics Show? And will the company make substantial cuts in its workforce?

Regarding the Zune phone, she wrote, the answer is probably not. (That's consistent with what we're hearing.) However, Goldman Sachs believes the Redmond company is likely to reduce its headcount. Here's an excerpt from Friar's note to clients, explaining the logic and the potential impact on Microsoft earnings.

More broadly for Microsoft, industry analysts have begun to speculate on whether or not the company is about to announce a significant reduction in force - in the 10%-17% range. In our view, the company is likely to cut heads - most other large IT companies are already doing so - so a cut in 10% range seems reasonable and, in our view, good for the shares. Our rough analysis suggests a 10% headcount reduction corresponds to about a 7% reduction in op ex, or approximately an incremental 20c to FY2010 estimates."

Earlier: Reality check on Microsoft layoffs

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I'm getting ready for a trip that has become an annual tradition for me. I'll be in San Francisco on Tuesday posting from Macworld Expo, and the rest of the week in Las Vegas for the Consumer Electronics Show. It's one of the most busy and fun weeks of my year, and I'm especially looking forward to making the trip for TechFlash for the first time.

The fun part is getting an early glimpse of all the new stuff coming in technology. And beforehand, I always enjoy the guessing game about what the big companies are going to announce.

But this year my mind has been going in a different direction. I've found myself not guessing about what will be announced so much as thinking about what I want to see -- the things I'd find interesting enough to cover or crave. So I put together this list.

MAC TABLET: This has been rumored for years -- a full-fledged Mac tablet computer. There are new signs that Apple is headed in this direction by expanding, literally, on the iPod Touch. Given Microsoft's struggles with Tablet PCs, it would be fascinating to see Apple use the popularity of its music device to give the Mac market even more momentum. And it would be great to see it at Macworld.

A SURPRISE PS3 MOVE: One question facing Sony is whether it will be able to pull the PlayStation 3 out of third place in the market. As someone who likes video games but doesn't always have time to master the controls, I'd like to see a breakthrough interface that goes beyond even Nintendo's Wii to offer a completely intuitive and accurate method of controlling console games.

BREAKTHROUGH IN FORD SYNC: Former Boeing exec Alan Mulally, now Ford's CEO, is speaking at CES on Thursday, and it's looking like he'll unveil the next generation of Sync, the joint Ford-Microsoft entertainment and information system. How about something totally unexpected in Sync that singlehandedly revives the U.S. auto industry? Is that too much to ask?

TRUE XBOX-NETFLIX INTEGRATION: I've been watching shows and movies lately via the Xbox 360's new Netflix on-demand feature. This is a minor annoyance, and I've written about it before, but it's crazy that I need to first go to a separate device, the PC, to populate the queue. Netflix and Microsoft should finish the job and let people browse the full Netflix on-demand catalog on their TVs.

COMING UP THIS WEEK

Watch for coverage from Macworld Expo and the Consumer Electronics Show on TechFlash all this week.

IPHONE WIRELESS ROUTER: Another from my list of personal pet peeves: Why are iPhone users relegated to jailbreaking their devices if they want to install an app that lets them use the iPhone's 3G wireless connection for mobile Internet access on their laptops? This would be a great addition to the iPhone's native functionality.

NEW KINDLE: Come on, Amazon, why not surprise us with an early glimpse of your next-generation digital book reader?

GREEN REVOLUTION: President-elect Barack Obama should make a surprise appearance at CES to unveil a previously secret technology that will end U.S. dependence on foreign oil by the end of the year, simultaneously solving the global economic crisis. (Hey, if you're going to make a list, why not dream big?) 

WINDOWS 7: Microsoft needs to show an amazing new Windows 7 feature -- something absolutely, indisputably amazing --  that no one has seen before. Unfortunately this isn't going to happen, because the company has already unveiled the major features for the next version of the operating system. But Microsoft needs a big surprise at CES, from Windows or another product group. This is particularly true after its rocky Windows Vista experience and, just last week, its Zune meltdown.

SEINFELD: Microsoft traditionally brings out a star for a guest appearance during its CES keynote. This year there's no more appropriate choice than Jerry Seinfeld, who could use his time on stage to explain to us those perplexing Windows ads he made with Bill Gates. At the very least, Seinfeld could make jokes about them.

A JOBS SURPRISE: The real kicker, of course, would be a surprise appearance by Steve Jobs at Macworld. Recent announcements notwithstanding, here's hoping the Apple CEO has one last "One More Thing" to show on the Macworld stage.

What do you think? Am I too optimistic? Not thinking about the right stuff? Feel free to offer your own wish list below. 

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Marcus Courtney, a one-time Microsoft contract worker, left his job as president of the Seattle-based WashTech technology labor union last year for a new position at the UNI Global Union in Switzerland. He left without fanfare, but he was back in Seattle visiting relatives for the holidays, and we got a chance to sit down with him.

Courtney, 38, has been replaced at WashTech by new president Les French. Last week, over coffee in Seattle's Greenwood neighborhood, Courtney reflected on WashTech's attempts to organize Microsoft employees, discussed the current Microsoft layoff rumors, and explained how his perspective has changed since taking an international role.

Continue reading for excerpts from the conversation.

Q: What happened to you, Marcus?

Courtney: I was in Seattle for 14 years and ran the WashTech local for 10 years. I was offered a job with Uni Global Union, which is a global federation of the world’s largest service-sector unions. ... I’m head of the telecommunications sector, which has 3.5 million members throughout the world.

Q: How do you feel about your legacy at WashTech?

Courtney: When we started we had no members, no money, no subscribers, no national affiliation, and then after 10 years, we had 1,400 members -- 1,100 we organized at AT&T Wireless -- and 17,000 Internet subscribers from across the country. Built up a reputation for advocacy and organizing technology workers in the country. ...

We were really the first workers in the country that launched real collective bargaining drives at Microsoft, and had groups of workers signed up under the union, going to management saying they wanted to be represented under a contract. That is pretty incredible to think about. … It was radical in a lot of ways. We were highlighting the fact that the industry was very unequal in terms of pay and treatment for different kinds of workers for the same kind of work. We really were helping point out the inequities that were existing in the technology economy at a time when it was unbelievably flush.

Q: But the original goal of actually having collective bargaining and a union at Microsoft …

Courtney: Never came to pass. No, it never came to pass.

Q: Why not, and what does that tell you?

Courtney: Even the history of the labor movement is not a quick rise and fall. It’s a long-term process, and there’s a lot of opposition. One thing I think my international experience is bringing to me is that other countries around the world do not have such hostility toward the idea of workers organizing. And one of the biggest obstacles in the United States to workers being able to freely choose the union is that management wants to make that decision for them. Management runs campaigns telling employees they don’t want to do it, threatening them with intimidation, and that helps dampen the ability of workers to freely form their own organizations and associations for their economic interest. 

Can’t say Microsoft did any aggressive anti-union campaigns, obviously. We were dealing with the contractors and the temporary agencies would say, ‘Go talk to Microsoft,’ and Microsoft would say, ‘Go talk to them.’ But the law was clearly an obstacle because the employment status – who’s the employer of temporary workers? -- is still very ill-defined under labor law. There’s a lot of legal obstacles in place that I think thwart the abilities of workers to join unions.

Q: You targeted contract workers, but didn’t you ultimately aspire to organize Microsoft’s permanent workforce?

Courtney: I think we always ultimately aspired that full-time employees would want to assert their bargaining rights and come together in a collective fashion. Contract workers were a starting point.

In labor politics and labor economics, in a broader sense, people want to say, well, people make good money or they have good benefits, like that’s the only thing that drives union representation. But there’s a lot of other things. There’s the issue of whether people have a say over how they work, or what that compensation is. You can’t look at somebody and say, oh, they make a good salary, therefore they don’t need a union. I think that’s a very narrow, conservative approach, not recognizing that bargaining rights are a universal freedom. It doesn’t matter whether you’re a well-compensated technology employee or a home-health care worker, everybody has a right to have a contract and a union. I think that does apply to technology workers. That’s not really thought of in this country or in many parts of the world.

Yeah, we didn’t succeed the first time, but at some point those workers at Microsoft can make a different decision, and they should have the freedom to make that decision on their own, free from management saying that they don’t want a union.

Q: You’ve been in Switzerland for the past six months, so you might not be as plugged into this as you normally were, but there are widespread rumors of possible layoffs at Microsoft. No confirmation, just rumors at this point. How might things be different in this kind of circumstance had the workforce unionized there?

Courtney: One of the things that obviously could be different is that they would know exactly what would be going on. The company can’t just walk in one day and dramatically lay off thousands of workers without any kind of notice and without a sense of, if you were to get laid off, what your package would look like, or what would your health care be, and things like that.

One of the things with contractors, and even with full-time Microsoft employees, they could maybe advocate that there be no layoffs, in a collective fashion, and say, Hey, what are things we can do differently to try to avoid layoffs? Obviously in a place like Seattle you don’t want companies laying off right now, because it feeds on this downward economic spiral in terms of people having less money to purchase goods and services, the housing market, all those sorts of things, and Microsoft’s a very important employer. ...

If there are going to be layoffs, they could talk about, what does that mean? How long will their health-care last? What is their severance package going to look like? What are their retraining benefits? If the company hires again, what is the process by which the hiring is done, as well as the layoffs? Who is going to get laid off? Is it based on seniority? Are there other factors that management can consider? Those kinds of things. Without the union contract, it’s the ultimate power of management to terminate employees. 

When you look at the financial crisis and see how companies are actually destroying value and hurting the economy and not adding value, it shows that we need important safeguards and checks against management power.

Q: Some of the issues that you dealt with here, from a U.S. perspective, were offshoring, H-1B Visas and protecting American technology jobs. Now that you’re at the international level, how has your perspective changed?

Courtney: [Laughs.] You know, that’s a really good question. I would say that American unions and American workers have a little more unique perspective than other parts of the world. And I’ve gotten in big debates about this.

I do come now from this more global, international perspective. … In Europe, I’ve had probably my most detailed discussions about it. I’ve also had the opportunity to travel to places in Africa, and India, where a lot of the offshoring takes place, and hear the perspectives there. I think I’m getting a broader perspective.

In Europe, they can’t understand the intensity of the offshoring debate as much, because economic liberalization that’s happening in Europe happened originally very differently than in the United States. There was strong support for creating the European Union, for having a more unified Europe, but they wanted to do it recognizing the social implications of that, and actually bringing the social aspects into the debate, and recognizing that those were just as strong considerations as the economic aspects. They weren’t just talking about economic freedom, which is what you hear in the U.S. with the free-trade agreements. It’s all about business concerns, and then we’ll deal with the social consequences later, if ever. …

The other thing is, when you talk with employers there (in Europe), they actually will talk about market failure. This is the incredible thing. You will sit across the table from employers, and they will say, from their perspective, if we have ‘a market failure’ in some aspects then we should have appropriate regulation to deal with the market failure. That’s unheard of in the United States, in our current political environment. Maybe that will be changing in terms of some of this (financial crisis). But the idea of employers and businesses saying, if the market does fail, we need appropriate regulation, and they’re willing to talk about the fact that the unions and government have a positive role to play -- it’s a very different environment over there.

Q: One of the most fascinating things that happened to you in the last few years at WashTech was the anonymous packages you started getting with internal Microsoft documents. Did you ever figure out who was leaving those?

Courtney: No, I never knew who the Deep Throats were. I think that showed we were seen as a credible voice, if people gave us information that we would credibly put out that information from the perspective of what the employees’ concerns were and do it in a responsible fashion. I think that was really a reflection of a lot of the credibility we had gained over time. We were using the Internet, and we were talking with mainstream media, and we were building that voice.

And I think that unions, not just here in the United States but all over the world, need to gain that power and understand they have to be much more creative about being a source of information – not only for workers generally but also for the news media. That’s a really important role, especially now that we’re seeing more turmoil in the media.

We were right on, I think, in pointing out that what Microsoft might be saying wasn’t necessarily the whole story. There are two sides to every story, and workers certainly might not share the same opinion as management.

Even though you’ve moved on, can you talk about WashTech currently?

Courtney: Yeah, I think things are going very well. I just had lunch with the local on Tuesday. Things are going very well, they still are actively trying to organize workers, and they just tried to organize 175 folks at AT&T in the tech center, the IT group there. That was our second attempt, it didn’t come out, but they’re still actively organizing. They have a new, great local president, Les French, who’s head of the team, and there’s still a good board. It’s a very good mix of folks, and I think it’s going to have a good, solid future.

Q: Based on your own experience, do you think there’s any chance that employees at Microsoft will ever unionize?

Courtney: Of course. I think it’s just a natural thing. People have a lot of value to add and, absent a union, it becomes a very unilateral conversation. It becomes what management wants. They can more easily discount the input of employees.

Increasing the quality of the product is a big thing you’ll hear among educated professional employees. It’s not just about work for them. It’s not all about money. How are we going to improve product quality? What is a new way of doing this, a better way of doing this? I think unions can add a lot of value in that sense.

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Internet Explorer continues to lose market share to other Web browsers, including Firefox and Safari. The Microsoft Web browser now has 68.15 percent share, down from 79.9 percent in January 2007 and well off the days when it controlled more than 90 percent of the market, according to a report from Market Share.  Firefox and Safari continued to climb at 21.3 percent and 7.9 percent, respectively.

But even more interesting is that a new player in the browser wars -- Google -- is just starting to make waves. For the month of December, Google's Chrome topped one percent. That's significant given that Chrome only was introduced in early September.
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We've known for a couple days that it was a clock glitch, related to the leap year, that caused the temporary worldwide meltdown of Microsoft's Zune 30 GB devices. But for anyone interested in even more detail than that, this post on ZuneBoards shows and explains what's purported to be the precise programming bug that caused the problem.

Assuming it's authentic, the buggy code demonstrates just how vulnerable technology can be to human error, even in this age of high-tech consumer electronics. (Link via Silicon Alley Insider.)

In other corners of the Web, the Great Zune Meltdown of 2008 continues to fuel technological satire. For example, the new Seattle-based site cheddrmedia.com is holding a contest to create a new Zune slogan based on the incident. The prize for the winner: an iPod Nano.

As of yesterday, some TechFlash readers were still experiencing problems with their 30GB Zunes. What's the status today? Drop me a note with the details, or post a comment below, and I'll ask Microsoft what it's doing for people whose Zunes weren't magically revived.
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Speculation about possible layoffs at Microsoft has been swirling for weeks now in the Seattle tech community and online. We've been digging for information on this for a while, talking to people inside Microsoft and others familiar with the company. But so far, at least, we haven't been able to get any reliable information or direct confirmation.

That doesn't necessarily mean layoffs aren't coming. We're continuing to dig, and we welcome any and all tips. But it's worth noting that none of the online reports so far seem to be based on first-hand knowledge.

For example, a report this week on Fudzilla called a 17 percent Microsoft workforce reduction "no longer a rumor but a fact," but the site didn't cite a source or even give a general sense for where it got the information.

PREVIOUSLY ON TECHFLASH

Analysis: Microsoft boosted hiring just as Google became more cautious

Employee blog post stirs rumors of possible Microsoft layoffs

Silicon Alley Insider's Henry Blodget yesterday called a cut of that magnitude highly unlikely. "Unless Microsoft's business has been absolutely crushed in the past two months, there is no reason for the company to suddenly cut this much cost."

The anonymous Mini-Microsoft employee blogger, who two weeks ago fueled the layoff rumors, is now highlighting a series of comments that appear to put a damper on the speculation.

As we noted in this morning's 2009 Microsoft preview, the company is seeking to cut hundreds of millions in expenses. Steve Ballmer told shareholders in November that headcount growth will be much slower this year and probably next. The company has consistently declined to comment when asked about the possibility of layoffs.

If the company reduces its workforce, Microsoft's contractors and vendors could be among the most vulnerable. The company doesn't report those workers as part of its employment numbers, so the cutbacks wouldn't be as public. The Seattle Times' Ben Romano reported this week that he's "heard from a handful of contractors whose contracts at Microsoft were abruptly cut short."

In the end, Microsoft may try to cut expenses through something more nuanced than a huge layoff. Matt Rosoff, an analyst at the Kirkland-based Directions on Microsoft research firm, offered this via email: "I wouldn’t be surprised to see a reorganization in which certain groups are eliminated or split apart, with some projects canceled or scaled back as a result."

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Microsoft in 2009 will grapple with much of the same economic uncertainty as other companies in the Seattle region and around the world – with billions of dollars and thousands of jobs potentially hanging in the balance.

The big question is how much the global financial turmoil will affect sales of Microsoft’s flagship PC and computer-server software, as other companies pull back on their technology spending to weather the storm.  That, in turn, will determine how much Microsoft needs to cut its own budget.

Microsoft said in October that it would reduce planned spending by as much as $500 million in the current fiscal year, ending June 30. Some Wall Street analysts have since cut their earnings projections for the company. The full near-term impact may not be known until Microsoft announces quarterly earnings Jan. 22.

But the economy is far from the only challenge facing the Redmond company. These are some of the key issues worth watching at Microsoft in the coming year.

JOB CUTS? Microsoft CEO Steve Ballmer said in November that employment growth would be much slower this fiscal year and probably next, but the company has declined to comment on the possibility of reducing its work force.

If they were to occur, substantial layoffs would be unprecedented for the company. Microsoft continued to grow through the dot-com bust, albeit at a slower rate.

Microsoft has ramped up its hiring significantly in recent years, now employing more than 94,000 people globally, including more than 40,000 in the Seattle area.  Those numbers don’t include thousands of contract workers who work for the company under temporary employment agreements. Those contract positions could be among the most vulnerable if the company decides to cut back.

INTERNET SEARCH: Microsoft has left the door open to the possibility of an Internet search deal or partnership with Yahoo, following its unsuccessful attempt to acquire all of the Sunnyvale, Calif., company last year.

Combining the Yahoo and Microsoft Live Search units would quickly give Microsoft nearly 30 percent of the U.S. market, putting it in a stronger position to challenge Google. The question is whether the companies can come to terms.

Microsoft has separately been exploring the possibility of a new brand for its search engine, and that could provide an alternative if a Yahoo deal doesn’t come through.

In the broader online business, all eyes will be on Qi Lu, the former Yahoo executive who is taking over as the new president of Microsoft’s Online Services Business.  How much of an impact can he make on the business, and how quickly?

WINDOWS 7:  The next version of Microsoft’s flagship PC operating system will give the company a chance to redeem itself following Windows Vista’s stumbles. Technical reviewers and others in the industry have responded favorably to Microsoft’s early previews of Windows 7, Windows Vista’s successor.

Microsoft hasn’t given a date for Windows 7’s official debut, but there are signs that the company is aiming to release the new operating system in time for the 2009 holiday season. More details could come as soon as Jan. 7 at the Consumer Electronics Show in Las Vegas, where Ballmer will be speaking.

Whenever it happens, the transition from Windows Vista to Windows 7 promises to be smoother than the one from XP to Vista, because the changes aren’t as radical.

WINDOWS MOBILE: Microsoft’s operating system for mobile phones is facing an increasing challenge from the iPhone. Apple’s device gained traction in the past year as the company shifted to third-generation wireless technology and won fans by offering third-party software through the Apple App Store.

The question in the coming year is how Microsoft will react. The company has said it will bring its Zune software to Windows Mobile devices, creating a stronger connection between the mobile operating system and its music initiatives. But taking on the iPhone – in addition to BlackBerry and Nokia devices – may require a more significant overhaul in Microsoft’s strategy in this area.

WINDOWS AZURE: Microsoft last year unveiled plans for this new cloud-computing platform, which will let other companies and developers use Microsoft’s worldwide network of data centers to offer their own online services.

Microsoft is competing heavily in this area with such companies as Google, Amazon.com and Salesforce.com, and one question in the coming year is whether any will emerge as the clear leader. Developers also will be looking to Microsoft for a more definitive rollout schedule and plans for the Azure platform.

SERVER & TOOLS: This Microsoft division will provide an important gauge of the economy’s effect on the company. Such programs as Windows Server and the SQL Server database management software have made this unit a quiet financial stalwart, consistently posting steady growth in quarterly revenue and profits.

But any cutbacks in corporate technology spending could be more noticeable in this division than in others that rely more heavily on consumer spending.

VIDEO GAMES: Microsoft’s Xbox 360 game console appeared to benefit from earlier price cuts during the recent holiday season, strengthening its position against Sony’s higher-priced PlayStation 3 console. But the Nintendo Wii continues to dominate.

For Microsoft’s video-game unit, the key challenges in the next year will be holding off Sony, chipping away at Nintendo’s lead, broadening the market for the Xbox 360, and boosting profits for the Entertainment & Devices Division.

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