Microsoft (NASDAQ: MSFT) says that its important video game launch for Halo 3 brought in $170 million in the first day that it was available. The Wall Street Journal writes that one analyst believes that the game could help push Xbox 360 sales to 400,000 to 500,000 units in the US this month. In August that number was 277,000.

Does the increased activity help Microsoft much? Not really.

According to the company's 10K, the Microsoft game division lost $1.9 billion last year. Revenue was $6.1 billion. Even if Halo 3 sales bring the segment of the world's largest software company to a break-even, the unit is a small part of the company's $51 billion in sales and nearly $19 billion in operating income.

Microsoft's game operation will continue to be dogged by the popularity of Nintendo Wii and competition from the Sony (NYSE: SNE) PS3. That will keep pressure on the price of the Xbox game console itself. So, the company's sales of Halo 3 and other games will have to be extraordinary to make any financial difference to the company.

For Microsoft, the Halo 3 news is good PR, but it does very little to convince Wall Street that it is worth management's time to fiddle around with such a relatively small and money-losing business.

Douglas A. McIntyre is a partner at 24/7 Wall St.

Shares sold short in Microsoft (NASDAQ: MSFT) fell 14.1 million shares in September to 83 million. It seems that the shorts knew enough to get out ahead of good news.

So far this year, Microsoft's stock has been flat, but over the last three days it has moved up more than 3% on news that it had released its Halo 3 video game and that it is in talks to buy part of social network Facebook.

The enthusiasm about Halo may be well-placed. In the company's last fiscal year, its devices business lost $1.9 billion on $6.1 billion in revenue. The previous year was not any better. The world's largest software company needs a catalyst to drive sales of its Xbox 360, and Halo 3 may well do that.

The Facebook deal has also drawn a great deal of attention. Rival Google (NASDAQ: GOOG) is building a large advertising platform using its own search inventory combined with impressions that it gets from its AdSense network. To expand that business, it is buying DoubleClick and has a deal to sell ads on social network leader MySpace. AOL is making moves in the same business. It owns Advertising.com, the largest ad network, and has just bought behavior targeting company Tacoda.

That leaves Microsoft sitting well behind its rivals. A deal with Facebook could help expand a network around its portal, MSN. Online services lost $732 million last year.

It may be that the company is facing up to its online and devices problems. That could be good news.

Douglas A. McIntyre is a partner at 24/7 Wall St.

MAJOR PAPERS:

• Singapore Airlines deal to buy 15.7% of China Eastern Airlines (NYSE: CEA), along with their parent Temasek Holding's 8.3% share, may be in jeopardy as Cathay Pacific Airways is said to also be interested in China Eastern, reported the Wall Street Journal.

OTHER PAPERS:

• As a part of its annual report to be released this week, BHP Billiton Limited (NYSE: BHP) is expected to announce that it has uncovered potentially the largest gold reserves in the world at its South Australian Olympic Dam mine, reported the Herald Sun.
• According to the Washington Post, citing congressional investigators, the FBI is investigating technology company Unisys Corporation (NYSE: UIS) after it allegedly failed to detect "cyber break-ins traced to a Chinese-language Web site and then tried to cover up its deficiencies."
• The Telegraph reported that British bank Barclays (NYSE: BCS) is reportedly preparing to sell FirstPlus, one of its subprime consumer loan units, at a loss. Barclays is expected to obtain a price lower than GBP4.5B, the book value of the unit's loan portfolio.
• Microsoft Corporation (NASDAQ: MSFT) will tomorrow release its 'Halo 3' video game and the company expects over $150M in sales in the first 24 hours of its release, and a profit margin that could reach 90%, reported the Los Angeles Times.
• Housing slump or not, Home Depot Inc (NYSE: HD) CEO Frank Blake says there will be no large jobs cuts or store closings, reported the Associated Press.

Microsoft Corp. (NASDAQ: MSFT)'s release of the gaming title Halo 3 is what I consider to be the last stand for the software company to make just a single penny of profit on its billion dollar-losing Xbox gaming division. For years now, we're heard from J. Allard and other Microsoft execs that the software sales would make money for the division while the company continued to sell Xbox hardware at a loss just to get it into the hands of customers. Ditto for Sony Corp. (NYSE: SNE), which reportedly takes a large hit on each PlayStation 3 sale. So far, Microsoft hasn't made anything from the sale of Xbox machines.

Microsoft even cinched up its position to make the profit in video game sales by purchasing Bungie Studios years ago, makers of the Halo game franchise. The Halo games have been crucial to Microsoft's Xbox success in sales (reportedly over 8 million consoles), because without it, the company would have to seriously be thinking about exiting that piece of the entertainment biz.

Once Microsoft Inc.'s (NASDAQ: MSFT) Halo 3 game is launched in September 25th, much of the nation will see some retail madness as old and new gamers line up (and sleep) in those long lines just to get a crack at buying the newest, best game for the Xbox 360 gaming console. Naturally, Best Buy Co. (NYSE: BBY) locations will roll out the game with a considerable fanfare.

Will the nation's largest consumer electronics retailer take advantage of the hoopla? I hope so.

In fact, some locations will be holding midnight parties the night of September 24th, similar to recent kickoff for the Sony PlayStation 3 and 2005's launch of Halo 2. Best Buy generally provides some kind of 'surprise' and freebie to go along with events like this.

In terms of marketing strategy, certain gaming titles (and consoles) and the Apple, Inc. (NASDAQ: AAPL) iPhone are about the only consumer electronics items that generate this kind of fervor. In this instance, Best Buy should milk it for all its worth by providing "20% off new titles" coupons to those that attend the launch party and buy the new Halo 3 game when it is released in a few weeks. The company can afford this kind of promotion to keep the fishing hook in the mouth of as many gaming title purchasers as possible.

Microsoft Corp. (NASDAQ: MSFT) will be releasing the third installment in the Halo game series to its Xbox 360 platform on September 25, the company said this morning. As the first two Halo games are the best-selling games ever for the Xbox line of gaming consoles, this is no small announcement. The first Halo game was recognized by Microsoft as a reason some customers bought the game console itself, so when one of these sequels is released, better not be at a Best Buy (NYSE: BBY) at midnight on the release date.

Microsoft purchased Bungie Studios (which produced the first Halo game), largely because Halo became the game title that defined the Xbox experience -- it means that much to the software giant. All indications are that the purchase of Bungie was extremely profitable for the company, as Halo 2 sales topped $125 million in a single day in 2004. Whoa -- this is some kind of franchise, no?

The Halo franchise, so far, has been Microsoft's largest weapon in taking on Sony Corp. (NYSE: SNE) and Nintendo Ltd. (Other OTC: NTDOY) in the gaming business, which is now larger (by far) than the movie-making business (much to the chagrin of Hollywood). With sales of Halo and Halo 2 having made up quite a bit for Microsoft's losses in selling the hardware consoles themselves, will the release of Halo 3 this summer beat Sony further down? The PlayStation 3 maker has seen sales of its flagship gaming console flop due to high prices and short supply, while Nintendo's less advanced but more interactive Wii console has outsold it handily. When Microsoft releases Halo 3, it may pound Sony harder into the ground -- while giving Microsoft yet another excellent booster shot into a core area of its business.

Microsoft's (NASDAQ: MSFT) Halo 2 video game racked up sales of $125 million the day it hit the market. The world's largest software company believes that sales of the new Halo 3 game will be even larger. Aside from a version of the game for the Xbox 360, there will also be a Halo 3 for the Microsoft Zune.

According to one video game review publication, the newest version of the game is meant to fend off competition for the Sony (NYSE: SNE) PS3 and Nintendo Wii.

Video game industry experts say that Halo 3 has four million pre-orders from retailers, compared with 1.5 million for the launch of Halo 2. If that is true, it may add to the troubles for the already shaky start of the new PS3. Most surveys show the new Sony platform's sales lagging the unexpectedly popular Wii and the Xbox.

Wall Street and the gaming industry did not expect that Xbox, which was launched in late 2001, had much of a chance of catching Sony. The Japanese company simply had too large a lead. But, it is now Sony that is struggling to move back into first place. PS3 problems have even been blamed for the departure from Sony of PlayStation creator Ken Kutaragi.

The Microsoft way is to enter a business, out-develop and out-spend competition, and then finish them off. It seems to be working against Sony.

Douglas A. McIntyre is a partner at 24/7 Wall St.