Analysts (still) want the Zune's head on a platter

Even as Microsoft readies a new, sleeker version of its struggling iPod competitor, analysts are once again calling on Microsoft to "abandon" the Zune after another quarter of disappointing sales. Is it time for Microsoft to cut the Zune loose?

MarketWatch scoured Microsoft's just-released quarterly earnings report for details on the business unit that's responsible for the Zune, and what it found wasn't pretty: just $211 million in revenue, a steep 42-percent dip from the prior quarter. (For comparison's sake, Apple made a staggering $1.5 billion from its iPod unit last quarter, despite an 11-percent drop-off in sales, according to MarketWatch.)

And that's just the latest round of bad news for the Zune. Back in January, we learned that Zune revenue in particular (as opposed to the non-gaming division of Microsoft's "Entertainment and Devices" unit, which includes the Zune and accounts for the most recent figures) took a disastrous 54 percent plunge in Microsoft's fiscal second quarter, in part "reflecting a decrease in device sales" according to a Microsoft financial filing.

The latest set of numbers has—again—provoked dark grumblings from analysts, who want Microsoft to plug what they see as a financial sinkhole.

"The market reception for Zune is so disappointing that many retailers have even stopped selling it altogether," an analyst for Tradition Capital Management (which holds a fair share of Microsoft stock) told MarketWatch. "Microsoft should abandon Zune and follow Apple's strategy to make its presence felt in the high-growth smartphone sector."

And then there's this grim assessment (again, quoted by MarketWatch) from an IDG analyst: "If Zune were going to make a strong move against the iPod it already would have."

All this comes as Microsoft is readying the Zune HD—a slimmed-down, gussied-up version of the Zune with a touchscreen OLED display, an HD radio receiver, and the ability to output 720p HD video to an HDTV via an HDTV-compatible A/V dock.

There's also talk that Microsoft is working on a top-secret "Pink Project" that would involve bringing Zune-powered music and video abilities to a new, more consumer-friendly generation of Windows Mobile handsets.

In any case, I wouldn't be so quick to declare the Zune dead. Personally, I'm anxious to see what the new Zune looks and feels—indeed, neither the iPhone nor any of Apple's iPods can output HD video yet—and the upcoming rollout of the Zune Video Marketplace onto the Xbox 360 could give the Zune a much-needed shot in the arm.
 
That said, it's been ages since I've seen anyone on the street rocking out to a Zune.

So, what do you think: Is the Zune all done? Or is there life in the old player yet?

Related:
What's to become of Microsoft's answer to the iPod? [MarketWatch]