Half a year ago Microsoft took a $900 million charge due to unsold inventory of its Surface tablets. Apparently the company figured out how to turn its tablet business around later in the year, because Microsoft’s latest earnings report shows $893 million in revenue from Surface tablets in the fiscal quarter ending December 31st, 2013.

That’s more than twice the $400 million revenue the Surface division brought in during the previous quarter.

surface pro 2

While the new figures look pretty positive, Microsoft actually spend $932 million in order to make $893 million… in other words, Surface is still losing Microsoft money. But it’s losing the company less money.

Microsoft’s Surface tablets are the company’s first foray into the personal computer space — putting the software maker in direct competition with some of the PC makers it hopes will continue to install its software on computers they sell to consumers.

But I can see why Microsoft thought it was worth taking a risk by delivering its own hardware. Surface tablets run the Windows 8 and Windows RT operating systems and feature a user interface that’s dramatically different from Windows 7 and earlier. While there’s still a desktop mode for keyboard and mouse input, Surface tablets blur the lines between notebooks and laptops by offering a touch-friendly, full-screen user interface for apps, an integrated app store, gesture-based navigation, and optional keyboards for when you need them.

While many PC makers have launched Windows tablet/notebook hybrids in the past year or two, the Surface line of products is sort of like Google’s Nexus line of phones and tablets: It shows what Microsoft considers to be the Platonic ideal of a Windows tablet.

Theoretically that means even if the company continues to lose a bit of money on Surface tablets, there could be a good reason to keep making them: it’ll help keep competitors on their toes and producing high quality, affordable Windows tablets. On the other hand, if Microsoft had lost too much money on the Surface project, I wouldn’t have been surprised to see it go the way of the Zune media player and Kin smartphone while Microsoft instead shifted its focus from Windows hardware back to software and services.

Now that the company’s a bit closer to making its Surface products profitable, don’t expect to see them go away anytime soon though.

via TechCrunch

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12 replies on “Microsoft figures out how to sell Surface tablets”

  1. Their mistake was to brand it as a “tablet”. Apple and Android products had that turf already, MS should’ve gone the extra mile and try to create something *else*, a new class of product. Too bad that kind of boldness has never been strong in them.

    1. I foolishly bought a Surface without checking the OS properly; I had assumed I could install Window 7 which I know pretty well. The Window 8 OS is a nightmare; nothing, absolutely nothing is “intuitive” (which in MS parlance means you have learned how to do it). It took ages even to find out how to shut it down – the thing is supplied without any instruction apart from to “follow what’s on the screen” – which is damn all. I tried to download Firefox only to be told that “this software cannot run on this computer”. Silly me! The purpose of the Surface is to make all owners slaves to the great god Microsoft and to ban anything which might threaten MSs profits.

      I have just wasted a few hundred quid. My advice – don’t get a Surface Tablet1

  2. Is it that Microsoft figured how to sell devices or the fact that bloggers and reviewers finally realized how awesome and productive a tablet or a hybrid laptop/tablet could be beneficial to them?

  3. The earnings report wrt Surface sales is vague enough, that conclusions drawn such as the above in the piece are unwarranted.

    Surface sales did not necesarily improve, in terms of selling better. First, Surface continued to ramp up its distribution throughout 2013, so at least some of the larger number is simply due to better availability. Second, the obsolete 1st-gen RT model, likely included in the 900mil write-down, generated some sales with bargain holiday pricing.

    A better indicator of how well Surface is doing as a product is reflected in the apparent decision to scale back availability for the follow-up 2nd-gen Surfaces, with out-of-stocks widely reported, from both the online MS store and in local retailer, which have persisted from announcement until today.

    The piece’s assertion of Surface as “high quality, affordable Windows tablets” is likewise unfounded. While the hardware may have premium construction, that doesn’t translate to “high quality” in terms of appeal, as reflected in sales numbers. Much of the blame of course lies with the Win 8.x OS, but the hardware itself has had a fair number of issues, the latest being the firmware update fiasco with the Surface Pro 2.

    And “affordable,” the Surfaces aren’t. The Surface (RT) is priced higher than the marketing leading iPad when including the “optional” keyboard cover, and the Pro is at the $1K mark. The Surface line is MS’ showcase flagship product, with prices to match. It’s doubtful MS would plan to enter the value segment, first, because of lower margins, and second, because it’ll have an all-out war on its hands with its OEM partners.

    I do agree that the Surface line will stick around, at least for as long as MS’ “devices and services” mantra sticks around.

    1. I’m still holding out hope for this despite only reading about an RT version. Right now, I’m looking at the ASUS Vivotab Note 8. If a Surface Mini running Windows 8 comes out and with an active digitizer then I may get that.

  4. if they could hit the $400-$500 price point with an x86 Surface, they would probably suck in even more people. I love the Surfaces, but can’t justify the cost of a Pro 2 + cover. The $600 Pro 1 at Best Buy has been tempting though, and would be a great deal if the battery life wasn’t so rancid.

  5. Let’s be honest, with those numbers, the title should be “Microsoft figures out how to give away Surface tablets”. 🙂

    1. Expect to hear the reality later, as they once more “take a corporate writedown” and throw the cost of these experiments onto individual taxpayers. We’ve been “swindowed” again.

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