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Microsoft earnings suggest strong Surface growth

Microsoft earnings suggest strong Surface growth

Microsoft's most recently quarterly earnings call suggests strong growth for its Surface tablet family, but it still has a long way to go to make up that $900 million write-down.

Microsoft's latest quarterly earnings report shows strong growth for its Surface tablet experiment, but reveals it still has a long way to go to make up for the near billion-dollar shortfall the devices caused the company when originally launched.

The Surface family - made up of the ARM-powered Surface RT and Intel-powered Surface Pro - is an interesting departure from Microsoft's usual modus operandi: as well as licensing its software to third parties, as it has always done, it suddenly became its own customers' competitor with the launch of own-brand tablet hardware. It was a near-first for the company, which had previously battled its mobile customers with the ill-fated Kin line of semi-smart phones, and one that caught many of its Windows RT licensees by surprise.

It was also a massive flop. Despite generally positive critical reviews, sales of the original Surface devices were extremely slow - and Microsoft's entry into the market with an own-brand device saw its few Windows RT licensees abandon the platform altogether. Worse, a misjudgement of how much buyers would be willing to pay for the company's first attempt at a mass-market tablet resulted in a major price cut to shift unsold inventory - leading to a dramatic $900 million write-down on Microsoft's quarterly balance sheet.

The price cut, however, seemed to do the trick. Sales started to pick up, and with the recent launch of the Surface 2 and Surface Pro 2 addressing many of the criticisms levelled against their predecessors, the company's gamble looks to be heading in the right direction.

It still, however, has a long way to go. In its most recent quarterly earnings call, Microsoft revealed that sales of its Surface family - not including the Surface 2 and Surface Pro 2, which had not begun selling before the end of the financial quarter - doubled compared to the previous quarter. That doubling, however, accounts for only $400 million in revenue - less than half what the company lost in inventory mark-down the quarter before.

In short: Microsoft's Surface project is still in the red, and has a considerable way to go before it becomes a profit entry on the company's balance sheet. With the price cuts - and, the company claimed, better marketing - doing the trick for the original Surface models, though, there's hope yet for the much-improved Surface 2 continuing that growth.

Elsewhere in the earnings call, Microsoft announced that its overall revenue was higher than anticipated at $18.53 billion to a projected $17.79 billion, despite revenue from Windows licences sales to original equipment manufacturers (OEMs) dropping by seven per cent - lower than the expected 15 per cent - as a result of the continuing slow-down in traditional PC sales. Compared to the same period last year, when the company earned revenue of $16 billion, that's pretty impressive. Overall, the company's gross profits for the quarter stood at $13.42 billion compared to $11.84 billion in quarter three 2012.

25 Comments

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blohum 25th October 2013, 12:01 Quote
I hope that sales do pick up as I really like what they are doing, I for one will be looking for an RT device to replace my Android tablet in the near future... I'll never understand why some people are so anti the fact that RT doesn't run native desktop apps, it's like complaining that iOS devices don't run full MacOS programs.
Archtronics 25th October 2013, 12:06 Quote
They do seem to be gaining sales at work, if they can sort out the App Store they will be laughing.
Corky42 25th October 2013, 12:16 Quote
Quote:
Originally Posted by Article
despite revenue from Windows licences sales to original equipment manufacturers (OEMs) dropping by seven per cent - lower than the expected 15 per cent

Sorry if im being dumb, but im confused :?
If OEM sales only dropped 7% isn't that better than the expected 15%

Someone please tell me im having a blonde moment :o

Good to see all those people who said the Surface was over priced have been proved right, Microsoft needed to get the Surface out there and used by people so they can take it for a test drive.
Gareth Halfacree 25th October 2013, 12:21 Quote
Quote:
Originally Posted by Corky42
Sorry if im being dumb, but im confused :?
If OEM sales only dropped 7% isn't that better than the expected 15%
Yes, it is: the article is saying that it's surprising to see revenue growth when one of Microsoft's biggest earners shrank - but points out, as an aside, that the shrinkage was lower than feared.
Corky42 25th October 2013, 13:01 Quote
Yea i think i got confused with what i thought was a hyphen between "seven per cent - lower", but after educating my self i think its actually a "En dash"

Either that or its the odd way my brain work (or doesn't) :o
Gareth Halfacree 25th October 2013, 13:04 Quote
Quote:
Originally Posted by Corky42
Yea i think i got confused with what i thought was a hyphen between "seven per cent - lower", but after educating my self i think its actually a "En dash"
It *should* be an en dash, but with my keyboard lacking an Alt.Gr. key that's a pain to type - so I do the lazy thing 99% of the rest of the t'web does and just use the minus symbol in place of hyphens, en dashes and em dashes. Bad form, I know.
SchizoFrog 25th October 2013, 15:19 Quote
I am actually impressed by Microsoft's stand and development of their new products. Across the board (Windows, XBox One, Windows Phone and Surface, with the exception of maybe RT which will eventually become combined with WP) they are listening to customers and making relevant changes but there is little or no panic coming from them and certainly no rushing despite various sections of the company losing money right now. Windows Phone is slowly growing and Surface and Windows 8 are also gaining traction. The next year is looking increasingly important for Microsoft as everything comes on line and is due to sync up with the release of XBox One and 8.1 to fully roll out across various platforms.
Nexxo 26th October 2013, 20:24 Quote
Today I played with some Android tablets. It was interesting how, well, bland they seemed in comparison with a Surface RT. And their Office alternatives really were no patch on the real thing. I think that Windows 8/RT has a lot of potential; let's hope they realise it.
impar 27th October 2013, 11:19 Quote
Greetings!
Quote:
Originally Posted by Nexxo
Today I played with some Android tablets. It was interesting how, well, bland they seemed in comparison with a Surface RT. And their Office alternatives really were no patch on the real thing. I think that Windows 8/RT has a lot of potential; let's hope they realise it.
Someone who doesnt want to spend much and doesnt need to work in Office on the move will go the Android route. And these are the large majority of users.
Corky42 27th October 2013, 12:48 Quote
In fact (Warning PDF) a study done by Google showed most tablets get used for checking Email, Playing games, Social networking, and Looking up information. The only times actually creating something came up it showed it was being done by a very small amount of people very rarely.
impar 27th October 2013, 17:54 Quote
Greetings!

And tablets prices are expected to lower even more.
Quote:
Half of Tablets Will Cost Less Than $100 by 2017 – Report.
Tablet PC Shipment Forecast Lowered for the First Time Since 2011

http://www.xbitlabs.com/news/mobile/display/20131024234858_Half_of_Tablets_Will_Cost_Less_Than_100_by_2017_Report.html
How much does Microsoft gets from selling WRT licenses to manufacturers?
Snips 28th October 2013, 08:14 Quote
Quote:
Originally Posted by Nexxo
Today I played with some Android tablets. It was interesting how, well, bland they seemed in comparison with a Surface RT. And their Office alternatives really were no patch on the real thing. I think that Windows 8/RT has a lot of potential; let's hope they realise it.

Yep, I've known that for a while. At least you actually made the effort to use the alternative not like the rest of the trolls coming into this Microsoft topic to sprout their tales of doom and gloom on something they know nothing about.

P.S. research done by google about the use of google tablets is not an industry wide thorough report on the many uses of tablets. If you can't do something well on an android tablet, it's safe to say it wont get used in that way.
Nexxo 28th October 2013, 08:30 Quote
Quote:
Originally Posted by impar
Greetings!

Someone who doesnt want to spend much and doesnt need to work in Office on the move will go the Android route. And these are the large majority of users.

And yet, as I'm typing this from the 8.10am to London (delayed), I find myself surrounded by suits tapping away on their laptop --using Word and Outlook. Several tethered to charging sockets, by the way, and also toting iPads.

A light-weight, all day battery life tablet laptop hybrid with Office? For some people that makes sense.
Corky42 28th October 2013, 08:38 Quote
Quote:
Originally Posted by Snips
Yep, I've known that for a while. At least you actually made the effort to use the alternative not like the rest of the trolls coming into this Microsoft topic to sprout their tales of doom and gloom on something they know nothing about.

P.S. research done by google about the use of google tablets is not an industry wide thorough report on the many uses of tablets. If you can't do something well on an android tablet, it's safe to say it wont get used in that way.
Well feel free to provide us all with more up to date relevant research, but good luck with that as the research states...
Quote:
While market research surveys have helped us understand the demo-graphics of tablet ownership and provided early insights into usage, there is little comprehensive research available
And if you had bothered to read the research you would have found that far from being biased toward android based tablets, it was biased towards Apple tablets.
Quote:
73%(24) owned an Apple iPad and 27% (9) owned an Android-based tablet.
Also as far as i can see this thread hadn't degenerated into any "trolling" or people "sprout their tales of doom and gloom" or any anti Microsoft posts. If anything everyone has been positive about the Surface, something you would have seen if you had bothered to actually read something instead of spouting your usual inflammatory posts.
Snips 28th October 2013, 09:18 Quote
"Good to see all those people who said the Surface was over priced have been proved right"

Gloated troll post if I ever saw one, based on what research? The same is said today of the price of iPads. But then it's defended as a quality product, which then tends to imply that Surface is not. Often said by those who haven't used it.

So did they include Surface tablets in that report then did they? Err, NO. Thorough report on the use of tablets then? Err, NO.

As Nexxo said, they are "bland" and not a patch on WinRT/8 and the real Office.
impar 28th October 2013, 09:20 Quote
Greetings!
Quote:
Originally Posted by Nexxo
A light-weight, all day battery life tablet laptop hybrid with Office? For some people that makes sense.
For some, sure.
Gareth Halfacree 28th October 2013, 10:06 Quote
Quote:
Originally Posted by Snips
"Good to see all those people who said the Surface was over priced have been proved right" Gloated troll post if I ever saw one, based on what research?
Based on the fact that a dramatic price cut saw sales more than double? In other words: of the people who owned a Surface tablet by the end of Microsoft's last financial quarter, the majority believed the tablet was overpriced at its original RRP - or they wouldn't have waited for the surprise price-cut to buy one.
Corky42 28th October 2013, 10:14 Quote
Quote:
Originally Posted by Snips
"Good to see all those people who said the Surface was over priced have been proved right"

Gloated troll post if I ever saw one, based on what research? The same is said today of the price of iPads. But then it's defended as a quality product, which then tends to imply that Surface is not. Often said by those who haven't used it.

So did they include Surface tablets in that report then did they? Err, NO. Thorough report on the use of tablets then? Err, NO.

As Nexxo said, they are "bland" and not a patch on WinRT/8 and the real Office.

Do you even bother reading anything before you go slinging accusations at people ?

If you had bothered to read the research you would have read it was done in 2010, long before the Surface was released. As i said if you can come up with more up to date and relevant research please do provide us with some other evidence on typical tablet usage.
Nexxo 28th October 2013, 10:22 Quote
Quote:
Originally Posted by impar
For some, sure.

And that is still a substantial market. Something Google has been shooting for with their Chromebook.

The Surface RT was overpriced. The iPad is overpriced, but people will pay a premium for its ecosystem. The Surface RT and Android tablets don't have that asset so they have to be more keenly priced. Android manufacturers certainly know that and compete on price.
Snips 28th October 2013, 10:53 Quote
Quote:
Originally Posted by Gareth Halfacree
Quote:
Originally Posted by Snips
"Good to see all those people who said the Surface was over priced have been proved right" Gloated troll post if I ever saw one, based on what research?
Based on the fact that a dramatic price cut saw sales more than double? In other words: of the people who owned a Surface tablet by the end of Microsoft's last financial quarter, the majority believed the tablet was overpriced at its original RRP - or they wouldn't have waited for the surprise price-cut to buy one.

I do think it was more to do with people not knowing what the product was and poor marketing than overpricing. It was a quality product and the original selling price was dictated by that. I don't believe even at that price, it was ever going to break even. I'm sure I read somewhere the original Xbox suffered the same way.

@Corky42 Yes I read that part and dismissed it's relevance on that basis since so much has changed in 3 years. So why bring it to this discussion in the first place when it is proof of nothing relevant?
Corky42 28th October 2013, 12:26 Quote
Quote:
Originally Posted by Snips
@Corky42 Yes I read that part and dismissed it's relevance on that basis since so much has changed in 3 years. So why bring it to this discussion in the first place when it is proof of nothing relevant?

Because like any evidence you go on what information is available until something either re-enforces or disproves that evidence, and as you have yet to come up with any newer or more relevant research on the subject you would be foolish to discount what research has been done.

Its called scientific method, maybe you should read What Makes Good Science and stop relying on your own personal opinion or feelings. Or even better come up with some more up to date or relevant research instead of just dismissing something because it doesn't fit with your own personal view of the world.

We don't dismiss the theory of evolution because its 150 odd years old and you know why ? Because no one has come up with any evidence to disprove Darwin's research, just like you cant come up with any evidence to disprove the research done by Google.
Snips 28th October 2013, 14:24 Quote
You're forgetting that it has to be relevant to the topic at hand also. That link wasn't. So stop trolling yet another Microsoft topic with tripe.
Corky42 28th October 2013, 14:32 Quote
Ohh what you mean in a topic about strong Surface growth and that someone mentioned how, well, bland android seemed in comparison with a Surface RT. And their Office alternatives really were no patch on the real thing.

How odd that people should be discussing tablet usage in a topic about tablets, i mean who would have thought that. And if i remember this topic was totally clear of trolls until you showed up and started throw accusations around based on nothing more than your fanboyism for Microsoft.
Snips 28th October 2013, 14:53 Quote
I'll be the better man and say nothing further
cnyrsitizin 29th October 2013, 23:42 Quote
Reading the posts just after reading a review of the Asus T100 hybrid running full Windows 8.1 on Bay Trail, I really feel sorry for Microsoft and their Surface RT. 8 to 9 hours battery life, IPS panel and keyboard included and cheaper than the RT2 ($359 - 399 in US, £350 in UK). It's a game changer.
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