Its software and its not software for the F35, a windows level operating system or some space ship software. Companies with much less money than microsoft are still making game engines.
We're not, or at least I'm not, discussing whether Microsoft is capable of making their own game engine. No one in their right mind would doubt that, as Microsoft is one of the most capable and influential software producers in the World. But to make a game engine from scratch that can rival the likes of UE4, Frostbite 3, CryEngine etcetera would be an enormous undertaking, and probably not worth the effort to be honest.
What epic is able to do is their problem. Unreal Engine conversion to dx12 might well be harder to do than create a dx12 engine from the ground up because its a mass of code already. Not to mention their engine was already behind the curve so why think they have the expertise above other groups?
UE4 is behind the curve? Are you serious?! UE4 is perhaps the most advanced engine out there. There's a reason why so many devs use it. Also, UE4 is one of the few engines that actually have a dynamic global illumination system, and a multithreaded animation system.
Engines are also heavily modified by groups. eg. source engine in titanfall. Oxide developed their own engine on a relatively small budget and without a massive company (around 200 people on many projects). They've supported mantle, dx12, dx11 and plan to support vulkan.
Yes, but the Nitrous engine is specifically engineered for RTS games. Making a more flexible engine that can support a wide variety of games would be much more difficult.
that microsoft doesn't seem to have their own engine is kind of an embarrassment. If they thought enough to buy havok, then they should have thought about building an engine to take full advantage of their hardware and windows. Or at least buying one
Microsoft has a strong relationship with Epic, so they don't really need their own engine per say.