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Microsoft made the case for the future of the Xbox at a splashy unveiling last week, but one well-known Wall Street analyst isn’t convinced the console business is even worth keeping.

xboxRick Sherlund, the Nomura Equity Research analyst who has covered the Redmond company since it went public, says in a report this morning that the Xbox “doesn’t seem like a good enough business for Microsoft to focus on.” He says the company should consider shopping the Xbox business to a consumer electronics company such as Samsung.

[Follow-up: Should Microsoft sell its Xbox business? Sorry, but it’s probably too late]

Sherlund also says in the note that Microsoft should look into selling its Bing search engine to Facebook or Yahoo, reducing its substantial operating expenses and generating revenue instead from referring search traffic to the buyer.

Those are two of the more attention-grabbing assertions in the report, in which Sherlund says the potential for change at Microsoft is increasing. He writes, “There may be a shift in the wind upcoming for Microsoft, with shareholders potentially demanding a greater say in the direction of the company and how it might be run to drive a better return to shareholders.”

Microsoft isn’t commenting on Sherlund’s analysis. In general, the company has made the case that the Xbox and Bing businesses have strategic value beyond their short-term contribution to (or subtraction from) the bottom line. Microsoft’s Frank Shaw last week outlined the company’s view of Xbox One as a hub for a variety of Microsoft services in the living room.

[RelatedXbox One: How Microsoft is trying to change the game]

As part of his report, Sherlund says Nomura is increasing its price target for Microsoft to $38, from the previous $32, “not on fundamentals but rather on our view that there may be much more focus on shareholder value as a result of potential shareholder initiatives.”

Sherlund points to catalysts including the disclosure by ValueAct Capital that it has acquired about 1 percent of Microsoft’s shares. He writes, “With Microsoft’s shareholders likely frustrated with the share price, we think there may be reason to expect that ValueAct could leverage a 1% position with the support of others to advance their agenda for change.”

ValueAct’s Jeffrey Ubben has said he wouldn’t publicly campaign for changes in Microsoft’s strategy, but he also believes Microsoft should make Office more widely available beyond Windows. Sherlund echoes that sentiment in his report this morning.

Sherlund writes, “We believe there are many iPad and Android tablet users that would be willing to pay a monthly subscription fee for Office were it delivered on these platforms. Since Office is not available, users are finding substitutes such as Evernote, DropBox, Pages or Google Docs etc. This is bad – Office is being disenfranchised on the hottest growth platforms.”

Here is more from Sherlund’s comments about Xbox …

Xbox is one of the areas of success for Microsoft and is cool to consumers, but it is perhaps time to assess whether this can ever be material to the overall company and might be more leveragable to a consumer-oriented company such as Samsung. Perhaps they would be willing to pay several billion dollars for this to leverage their substantial consumer electronics business? Shareholders might want to know if they could possibly be better off if Xbox were spun out as a separate company or sold. Either way, it is not that material to the overall valuation of Microsoft and will not likely determine the success of Microsoft going forward; it’s just not profitable enough to move the needle that much at the company.

And an excerpt from his comments on Bing …

While we like Bing as a service, we need to look at this from an ROI and strategic perspective. If Microsoft could sell or even give Bing to Facebook or Yahoo and eliminate its operating costs and get a Traffic Acquisition Cost (TAC) back to monetize the traffic that Windows/Internet Explorer or Xbox in the living room can drive to Bing, this might generate perhaps $1.0bn of profit and positive FCF rather than be a drag of a similar magnitude. If this were returned to shareholders, this could add nearly 1% incremental to the dividend yield, in our estimation.

Previously on GeekWire: How to break up Microsoft: Maybe it’s not such a crazy idea

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