Microsoft is losing $2 billion a year on XBOX but making it back with Android...

Sherlund says that if you back out the Android profits, Microsoft is probably losing $2.5 billion on Skype, Xbox, and Windows Phone. Of that, $2 billion in losses are attributable to the Xbox platform.

Sherlund believes Microsoft needs to spin out Xbox. He sees it as an orphan group at Microsoft that doesn't really fit with anything it's doing.

Investors are blind to Xbox's struggles, says Sherlund, because they are "concealed by the hugely profitable Android royalties."

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Wow... I was pretty surprised just how much money MSFT is making off of Android now. I guess those $5 royalties add up.

Also, I do think Xbox would do better as a separate entity. It makes more sense as a consumer brand and the remaining Microsoft can focus on enterprise where they are making insane money. Right now there is no synergy between the Xbox and Windows brands. Xbox would also have more gamer friendly policies if they were independent.