Microsoft Continues To Lose Money On Its Surface Tablets, But Does It Matter?

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Surface loss Microsoft

If you are following Microsoft for the past few years, you might not be surprised to hear that Microsoft continues to lose money on its Surface tablets. ComputerWorld spoke with an analyst and concluded that Microsoft could have lost over $1.7 billion since its launch. In the last quarter, Surface business posted a revenue of $409 million and the cost of revenue was at $772 million. So, Microsoft lost about $363 million and they even mentioned in the financial reports that current year cost of revenue included Surface inventory adjustments resulting from our transition to newer generation devices and a decision to not ship a new form factor.” In FY2014, Microsoft lost about $676 million and in FY2013, Microsoft lost about $1.049 billion (including $900 million write-off).

But does it matter to Microsoft? ComputerWorld and their analyst claims that Microsoft may stop investing in Surface if this loss continues for few more quarters. But, I think Microsoft has enough balance sheet and cash flow to continue Surface business until it makes profit. Losing billions of dollars in some business units are not new to Microsoft, Xbox and Online Services Division (Bing) are two great examples. Both of them are now a great assets for Microsoft and even generating profits. Microsoft’s loss from Surface business represents just 3% of the company’s FY2014 gross margin.

In the annual letter sent to Microsoft employees, CEO Satya Nadella highlighted that Microsoft’s Windows device OS and first-party hardware will set the bar for productivity experiences like they did with Surface Pro 3. He also hinted that Microsoft will at times create new categories like they did with Surface(productivity tablet) to stimulate more demand for the entire Windows ecosystem.

Our first-party devices will light up digital work and life. Surface Pro 3 is a great example – it is the world’s best productivity tablet. In addition, we will build first-party hardware to stimulate more demand for the entire Windows ecosystem. That means at times we’ll develop new categories like we did with Surface. It also means we will responsibly make the market for Windows Phone, which is our goal with the Nokia devices and services acquisition.

This clearly indicates that Microsoft is willing to experiment with first party hardware and even ready to create new categories like they did with Surface.

What do you think?

Source: ComputerWorld

About Author

Pradeep, a Computer Science & Engineering graduate.

  • NegLewis

    Let’s see… after almost 5+ years of declining, the notebook business start selling better than tablets.
    What that means?
    That tablets are getting worse? (for their price)
    That notebooks are getting better? (people need more power/ flexibility)
    That OS’s (Windows/ Linus/ MAC) is getting better?
    That people started to lose interest in smartphones?

    This year Intel will release (hopefully) it’s best CPU since 2005+.
    This year Microsoft will release the first version of Windows that really “touch” consumers…
    This year Apple will release a touch friendly MacBook… Ubuntu has almost finished their “touch” developing OS.
    SmartWatches will enable people to see … that they really do not need a $800 smartphone… but a $500 Tablet/notebook.

    SO YES… MS must pressure the industry… even MORE… with a Surface Pro Mini 4… 8″/QuadCore/4 GB RAM/128 GB SSD….

  • dave

    and that’s just the lose on the hardware alone , doesn’t take into account the damage done to developer and OEM relationships ,it’s hard to imagine how they could have handled it worse. If windows 9 doesn’t at least have an option to disable Metro Tiles garbage these losses will look tiny in comparison when they stop selling Windows 7.

    • Bugbog

      Still going on about Windows 8? Better settle in for the long haul, as it’s here to stay. There can be no hybrid computers without the start screen. Computers will continue to merge further with mobile computing/telephony, so burying your head in the sand and wishing for the ‘good ole days’ is just wishful thinking.

      • dave

        yeah, i’m the only one who thinks metro is shit! merging the failed phone with the failed metro will fail, if their dumb enough to try it, funny that’s all the metrotards can come up with these days. lmfao

        • Bugbog

          I think it’s even funnier the amount of effort (and bile) you put in to railing against it! :D

          It may probably become something different in the future, but it most definitely won’t be returning to the way it was in the past.

          Deal with it.

          • dave

            funny how the truth is bile, an I’m putting in huge effort, when you posts over 5000 times trying to support a useless piece of shit that has already failed, you remind of the AMD kids a few years ago, get a life stop trolling for a failure, “probably become something different in the future”, what ? a more decayed corpse? the market will decide the future not mindless shills, lmfao

          • Bugbog

            If you feel you require insults and profanity to get your point across, then I believe that’s bile :)

            Peace. Out!

          • Vandrey Trindade

            Drop it. He’s not alone when it comes to the critics of Metro apps. Not me, of course.

            Even so, I think that in time Microsoft will prove to these guys that it was the right move to make it.
            Love Windows 8.1 and Windows Phone 8.1… Leave them with their rage alone. It’s the best for us =]

          • dave

            “in time Microsoft will prove to these guys that it was the right move to make it” , what a joke, the childish toy tiles are an epic flop, there are < 100 descent app and it's no going to improve, Microsoft is rushing to correct the error right now, funny how you feel rage from my comments, interesting the lengths you fanz will go to, you really feel Love for a device, what a weirdo,
            the vast majority think Metro is useless, that about all you got right! WP has < 3% market share, and Windows 8.x is losing market share, get over it!

          • Vandrey Trindade

            Yeah yeah… just like that Steam guy that said that “Windows 8 will be a disaster!” and then Windows 8 is the only OS that grows in their software survey monthly.

            Finally: The comment was not for you… Get over it =]

          • dave

            kids can’t help it that there parents buy retail, what a weak argument !

          • VHMP01

            So Dave, you mean Safari is lost because it has lost Marketshare for two months in a row? Right?

          • dave

            trying to bring apple into the discussion again and again does look so desperate, I doubt anyone on this site gives a f%$k about OSX, the blind fanism is just silly.

            the title is:
            Microsoft Continues To Lose Money On Its Surface Tablets, But Does It Matter?

            what does that have to do with apple?

            your just making a fool of yourself.

          • Vandrey Trindade

            He’s just making a point…… omg

          • VHMP01

            So you put up a ‘Sign’ that says: “Wrong Way! Windows 8.X loses market share for the second consecutive month”. So I asked you if your ‘Sign’ applies to all OSs? Because OSX has lost Marketshare for 3 months in a row now, from April to July 2014. So is OSX going the “Wrong Way” too?

          • VHMP01

            Guess what: OSX has lost Marketshare for 3 months in a row now, from April to July 2014:

            Windows: 90.80%, 90.99%, 91.53%, 91.68%
            OSX: 7.62%, 7.39%, 6.73%, 6.64%
            Linux: 1.58%, 1.62%, 1.74%, 1.68%

          • Topsey

            Please don’t compare Windows like that, if makes us MS supports look desperate. If the market for personal computer device was the same as 1999 this would matter. But the market had change to include Tablets and Smartphones. In that market we only have 14% market share of total computer devices :(

          • VHMP01

            Read first; Dave put up a sign saying: “Windows 8 loses marketshare for the second consecutive month”. So my comparison answering Dave´s is perfectly ok. Dave brought up only Windows 8, its equivalent is OSX, so I ask again those this 3 months that OSX has lost marketshare mean its doom?

          • VHMP01

            W8 12% still higher than what OSX has ever achieved!

          • Wizer1

            Yes but shat about iOS?

          • VHMP01

            Yes please, iOS dropping too in the last 3 months:
            iOS, 51.11%, 48.34%, 45.61%, 44.19%
            Android, 37.75%, 41.58%, 43.75%, 44.62%
            JavaMe, 4.36%, 3.46%, 3.77%, 4.19%
            Symbian, 3.77%, 2.52%, 2.73%, 2.57%
            WP, 0.83%, 2.10%, 1.99%, 2.49%
            Other, 2.18%, 2.00%, 2.15%, 1.94%

            http://marketshare.hitslink.com/

          • Bugbog

            I know, I know, don’t feed the trolls. But sometimes one just has to provide that one single rebuttal to the nonsense they spew!

          • dave

            so doesn’t have WP has < 3% market share, and Windows 8.x < 12.5% and is losing market share ? just who is trolling here and who speaks the truth?

        • VHMP01

          So how do you explain iOS and Android copying it?

    • Asgard

      I dont agree. The impact of Surface has been positive for developers and overall Windows device market. We got good mobile devices from OEMs only after Surface pushed them. And developers have now bigger install base to target with universal apps. I think MS is well positioned in long term, and Windows 9 is not too far.

      • dave

        “The impact of Surface has been positive for developers”, that is total BS ,Windows 8 has been a disaster for Microsoft developer relations,

        just look a the app store, < 140K us-en apps, and 99.9% total useless crap, metro is a sandboxed joke of a development environment, that's a big part of why the Surface line and Windows 8 in general has failed.

        newsflash: device and services = Ballmer

        the only thing Ms can achieve with surface at this point is to drive off OEMs like they apper to have with Sony,Samsung, and others!

    • NGM123

      W8 on a touch UI is nothing short of spectacular. Woeful on a PC I agree, but on a touch tablet it is superb.

  • bibleverse1

    People only see the Surface tablets as just tablets same as ipads, galaxy tabs and nexus 7s. They actually offer much more functionality and MS hasnt done a good job at marketing the versatility and letting public know you dont need a laptop if you have a surface tablet. Most consumers do not see the value of the Surface and the why it costs what is costs.They also have not done a good job creating a benefit for using a surface tablet and a windows 8 phone.

    • DarthTigris

      It’s not so much people as it is media representation and sales staff ignorance and bias. People want a tablet so they go check reviews and then go to the store and all they see is unwarranted bile toward MS products. How else are they expected to react?

      • VISU

        No matter how much they say otherwise, Surface Pro line of products is a PC…. sold without a Keyboard (You can buy separately)…
        To be successful as a tablet, it need attention of the apps developers who are showing no love for MS platforms… Until that changes, it will remain a PC…

    • dave

      the surface doesn’t even work on the lap, so it’s not a laptop replacement,it’s a very very nice tablet, thats it!, the lenovo yogas would be better if except for the upside down keyboard, I was going to get the Sony , but wanted to see surface 3 first, my Best buy was sold out, they said won’t be getting more and that Sonys getting out of notebooks along with Samsung and others, I wish Microsoft would focus on Software instead of pissing off OEms , it’s not good for the PC eco-system, and they just lose money on it anyway!

      • Buddy Green

        I use Surface 2 on my lap all of the time.
        Surface hits the sweet spot on many levels.

      • VHMP01

        “Lapable” ???

  • donzebe

    Keep the Surface alive, the brand is getting stronger and stronger. The surface will be another Xbox success story in the near future.

    • mariya4563

      Six months ago I lost my job and after that I was fortunate enough to stumble upon a great website which literally saved me. I started working for them online and in a short time after I’ve started averaging 15k a month… The best thing was that cause I am not that computer savvy all I needed was some basic typing skills and internet access to start… This is where to start————————————job.com..,.,..

  • Willem Evenhuis

    No, it doesn’t matter, hardware wise the surface is a great machine. I think a little more investment to get their product right is good. It does have to be much. I think the surface 3 is right in a lot of ways. It’s just that the software needs some ironing out and preferably some tailoring as well. I do however think they’re too optimistic that they can sell the surface for the current prices. A second thing I noticed is that they’re advertising the surface incorrectly. There’s too much emphasis on the newest hardware and a better bigger screen. The marketing strategy could be better. More focus should be on how the surface can be used as an all in one device as a pc and tablet. Show how office works in daily life, show how legacy apps still work on the desktop while enjoying the update office and windows 8 software. And what goes to hart not enough love of showing the full potential of what the stylus can do on windows 8 for the surface and not be affraid to tailor the surface for a better stylus experience (bigger buttons in the desktop environment, more choice in stylus apps, improvement universal ink-to-text-recognition across the OS (not as currently limited to only the ink pad and a seperate ink-to-text recognition algorhytm for journal and onenote, add ink-to-text recognistion functionality for the onenote app for the modern UI, improve stylus functionality such as more choice of paper backgrounds, simpler UI designs, a universal language for saving and sharing ink notes). Currently my stylus experience after years of iterations of stylus technology since windows 2005 has been an add-on. But now, already now the stylus expierence in windows 8 feels rich, fluent very good. Its only drawback is that microsoft did little to change the UI design of using the stylus. It currently still feels to be used as an accessory, while the experience could be so much better and productive if it was an integral part the UI. To some degree, I get the impression that Samsung got this right on their Note Phablet line ups.

    • dave

      I agree, I have a Samsung series 7 tablet with Windows 7 on it and the ativ stylus work great , It’s over two years now and still better than any windows 8 machine that I’ve seen, plus no tile BS,

      I even got an extra stylus @bestbut thats for their galaxy tablets and it works great too, but the best is the Wacom Intuos because of the better pressure and tilt sensing.

  • http://scalevate.com/ PoohGQ

    No, it doesn’t matter! If they were to exist the market right now, the OEMs would just revert to the cheap piece of crap they have been making all along.
    At this point it look like the gross margin is improving which is a bright point. In another 2 years it should be much improved. Microsoft is in it for the long haul as usual & I can’t see things get worse at this point..

    • dave

      wow, flame much? all OEMs just made cheap crap til surface? really?, is funny watching fanz get more and more desperate, the device disaster is nearing at an end, thank god, it’s like Exxon saying what a bunch of f$%kups the car companies are, we’ll show ya how it’s done, modern day Edsels, they might be okay if the Metro UI didn’t suck so bad!,lmfao

  • Buddy Green

    The marketing of this brilliant machine has been dismal.
    The fact that they don’t emphasize the importance of using the track pad to seamlessly switch between apps and browser form factors (which I do all of the time) is one such oversight in marketing this product.

  • laserfloyd

    Just keep pushing it like Xbox. In this day and age, if something doesn’t immediately become a sensation, it’s labeled as a colossal failure. Keep pushing it. Oh and work on marketing. ;)

    • dave

      yeah , more snappy dancing, more “honestly I wanna see you be brave”! eventually the mindless masses will give in, lmfao

  • cybersaurusrex

    The Surface is worth it in that if forced OEMs to (finally) start making some great 2-in-1s & hybrids. These innovations are actually taking a bite out of tablet sales now.

  • LexicoRed

    The only reasonable position for anyone who support Microsoft and want it to succeed is agreeing it is time to drop the hardware experiment.

    Yes the company can continue to burn through cash but it does make sense. Let Apple be Apple while Microsoft be Microsoft and focus on Service & Software for cross platform solutions like Azure.

    • VHMP01

      Apple hasn’t innovated since iPad; “let Apple be Apple” would doom the tech world with just marketing crapp; take aluminum being the cheapest metal as premium material! What a joke! Apple has always copied and now MS set the bar to high for them. SP3 is a great device!

      • dave

        what a meaningless comment, are you stoned or what? the bar not that high, but you must be!

        • Lj

          No, pretty sure your comment is meaningless and simply a name calling of one more differing opinion.

        • VHMP01

          Meaningless? Here Dave, let me help you with things Apple did not innovate: Steve Jobs’ own words: “We have been ‘ShameLESS’ about stealing great ideas”.

          Panorama + Folders = Android
          Notification Bar = Maemo
          The name “Apple” = The Beatles
          Slide to Unlock = Neonode N1m
          Mouse GUI = Xerox
          Reject calls with SMS = Symbian
          iMaps = Google Maps (Opps)
          Fingerprint sensor (Cracked) = PCs (Safe)
          Multitasking = webOS
          Copy/paste = WinMobile
          Ping = Facebook, Twitter
          iPad = Samsung´s Photoframe
          iPad Mini = Dell Streak
          iPod = Creative Technology and Walkman
          ‘iPhone’ the name = Linksys’ iPhone®
          ‘iOS’ the name = Cisco’s Internet OS (ios)
          Original iPhone = Samsung’s S700 Mp3 Player
          iPhone 4 & 4S = LG’s Prada
          iPhone 5c = Lumia 620
          Pinch to zoom = Samsung
          iMessage = BlackBerry Messenger
          iCloud = Dropbox + Onedrive
          iOS Minimalistic = Windows Phone.
          Smartphone Optical Stabilization = Nokia
          Siri (Clippy) = Xiaoi Bot + Nuance
          App Store = Ubuntu Software Center
          Multitouch Smartphone = Bought another company
          Bigger Screen smartphone = Everybody else
          MacBook Air = HP’s Sojourn
          Macsafe = Asian Crockery
          Thunderbolt = Intel
          OSX, iOS = Unix
          Newton = Psion Series 3, HP 95LX
          Apple Logo = Genesis 1:6, 3:6
          Aluminum = Cheapest Metal
          Plastic = ($$$ Reinforced Polymers)
          Security = Buy a new one…

          • LexicoRed

            It has never been about the best ideas but how the best ideas are implemented. Invention is coming up with a new idea innovation is taking that idea and executing it in a way that makes it successful. Hating on the fact that Apple does this over and over again does not help MS be more successful.

          • VHMP01

            Yet if someone dares to copy a ‘rectangle with square corners’ (That existed before), Apple goes nuts suing! Right? Bunch of corrupted hipocrites! By the way, I could not careless about Brands.

          • nohone

            Until Apple decides that someone stole from them, such as using the color green or a square with rounded corners. Then Jony Ive will record some video whining about how they have been copied, Apple will put up banners saying “Redmond, start your photocopiers,” claim that an icon of a trash bin is their exclusive idea, and they will file legal claims against everyone they can. Yes, copying is OK as long as it is Apple doing the copying, otherwise then it must stop.

          • Topsey

            That poor argument does not refute the fact that Microsoft is responsible for their own success and failure. The few vocal so called supporters who choose to avoid that truth and rather focus on competition. Thankfully we now have a CEO who will not.

          • dave

            nohone is just a troll/fanboy , his comments are always off topic, I can’t believe he came back again, must feel that there are enough fellow fanz that he thinks he is accomplishing something, it really sad the way these guy refuse to believe that everything wrong with Microsoft is somehow related to apple, and anyone who disagrees with their twisted logic is just a hater, I support MS when they get it right, these guys are a embrassment though, so stupid they have the oppisite effect they appear to be seeking, hmm, maybe there really paid apple shills, trying to make us look bad,lmfao. I sure hope your right about Nadella, I hear and seeing some encouraging signs ,he has a lot of damage to deal with esp with developer relations and needs Windows 9 to fix all the screw ups from 8.

          • nohone

            The guy who runs from web site to web site, posting tomb stones with my alias on it, has nothing to offer but personal attacks, is upset because when I write it distracts from people noticing his trolling.

          • dave

            Everyone Here > nohone

            You left for a time and I hope it was to use it as an opportunity to become less hateful, less angry. The forum was much more enjoyable, civil and intelligent during your absence. Please try harder to not return to your old poor self.

            you never did respond to that one, lol

          • nohone

            For someone who registered 16 days ago, you seem to know a lot about the history around here, and use the same lines about how I am mean and angry that a number of people use. Or was it just you, creating new aliases over and over, getting thrown out over and over so you just create a new alias each time. There was someone who would post that same tombstone picture about a year ago, so we know you are just creating new aliases.
            It was civil around here? You mean with your constant personal attacks?

          • dave

            paranoid much?,you really think anyone cares that much about your sorry flameyness? you really think that “Everyone Here” was me? have you ever seen 1 post of mine that is that polite?, they do have you pegged though don’t they?, lmfao!

          • dave

            sense they delete your last comment I’ll respond here though it won’t make sense to anyone but you, this is my last attempt,sense you clearly won’t accept my point, the “Everyone Here ” comment IMHO was polite, I on the other hand am not, because I don’t care, you make an art of trolling, off topic insults, and get out of here!, I actually feel sorry for you, so I stop picking on you for now. but seriously take a look at how you behave!

          • nohone

            “sense they delete your last comment I’ll respond here though it won’t make sense to anyone but you, this is my last attempt,sense you clearly won’t accept my point, the “Everyone Here ” comment IMHO was polite, I on the other hand am not, because I don’t care, you make an art of trolling, off topic insults, and get out of here!, I actually feel sorry for you, so I stop picking on you for now. but seriously take a look at how you behave!”

            They didn’t delete any of my comments, there you go again, lying. However I do see a number of your comments have disappeared, so you will lie and claim it is my comments that were removed. You wrote that “Everyone Here” comment, where is it? I don’t see it, because they deleted it. And yet my reply is still there, for all to see. We know how you behave, your personal attacks, your threatening pictures and words. I am not the one that gets banned from one site after another; and it is only time until you are removed from this one, only to reappear a little later with a different name.

            And the word is spelled since, not sense. Educate yourself before writing.

          • dave

            oh yeah, I was responding to another one of your BS post and my response wouldn’t post because because the comment was gone, something about the imaginery group that follows and taughts you!

          • nohone

            Thought you were done with me and not going to respond any more, and yet here you are responding to me, again. Of course I can’t prove it because they deleted that post of yours, again. And I never said anything in this article about an “imaginery [sic] group that follows and taught [sic]” me. Just another lie.

          • dave

            I’m clearly not “Everyone Here”, why don’t you take some responsibility and respond to “Everyone Here” instead of me?
            to painful to accept the truth ?, there is no one following you, you make an ass of yourself everywhere you go, take a look at your first post on this thread for example, doesn’t even mention Surface sales failure or the failure of the Metro interface, instead you babble incoherent anti apple rant, like you always do, the vast majority of PC users have reject the toylike Metro interface, which even MS has admitted was gear toward casual users at best, your free to disagree, but bringing apple into it just make you look bitter, angry and jealous of apples successes, which have nothing to do with the failed Metro and RT API, get ready to be a change hater because even MS know this can’t go on much longer before the damage cannot be repaired.

          • Guest

            Hello Pot meet Kettle

          • dave

            why do you even bother posting such stupid shit? don’t you get that all your whining about apple make you look like an f%^king idiot?

            why not try to make a valid point some time, instead of insults, apple whining, and off topic BS.

          • dave

            went from meaningless to pointless, WTF does any of that have to do with MS losing money on surface ? or are you just trolling ?

          • VHMP01

            You have bad memory, right? Or did you read the begining of the tread: “Let Apple be Apple while Microsoft be Microsoft”…

      • LexicoRed

        I get it Surface 3 is a great product but sadly it too is not selling. And losing a billion $ a year to make a few of us happy to own one is not worth it. Those finds should be used much more productively.

        • VHMP01

          I see companies starting to deploy them, its a tougth market, but those funds in my opinion are going the right way!

          • LexicoRed

            I understand your “option” that the funds are going the fight way, and your welcome to keep that opinion. Mean while the economic argument to support that opinion is no existent with no data to support even a long term return for these resources.

  • Thoughtful

    Many businesses don’t turn a profit in the first few years and aren’t expected to in their business plans. Surface hardware is a new business. I believe Microsoft will see higher volumes of Surface pros in the coming years and the past losses will have been worth it.

    I’m glad the Surface Pro 3 exists. It’s the perfect computer for my wife. It’s nearly perfect for me as well. When I look around for a device for myself, I am not finding anything better in the laptop world for my needs. Perfect for me is a 14″ Surface Pro 3 with a split format keyboard. – The 12″ screen is gorgeous, but I’d like larger fonts :) Also, split keyboards are more ergonomic.

    • Topsey

      You are right about investment but would you state how many years and dollars of loses before you declare Surface a failure.