Microsoft Surface Revenue is Way Up, But Sales Are Still Terrible

Microsoft’s Surface tablet sales double from ‘horrendous’ to ‘pretty bad’

By Andy Boxall January 24, 2014

Microsoft Surface 2 kick stand macro — Image used with permission by copyright holder

When it published its most recent financial report this week, Microsoft made no secret of how many Xbox One consoles it has sold since release. “Three point nine million sold in just five weeks,” it trumpeted, barely being able to resist putting a few exclamation marks at the end of the sentence. However, when it came to chatting about its other major consumer electronics release, the Surface tablets, it wasn’t as forthcoming.

“Surface revenue of $893 million,” it says, before telling us this is twice the amount taken during the previous three month period ($400 million). That’s it. It didn’t give us any firm numbers to examine or trumpet. The Surface 2 and Surface Pro 2 went on sale in October 2013, and the original pair were heavily discounted after failing to capture much attention.

Without any sales breakdowns by Microsoft, we’ve had to make our own guestimate. Based on some rudimentary math, we don’t think Microsoft sold more than 2 million Surface tablets (of any kind) in the last quarter.

Surface revenue may have doubled, but it’s still a net loss of about $40 million.

Surface prices range from a few hundred dollars to close to $1000. Let’s be generous and assume Microsoft earns an average of $500 for each tablet sold. That would mean somewhere in the region of 1.7 million were sold. Morgan Stanley had Microsoft down for selling 1.4 million Surface tablets in the final three months of 2013, so the figure is probably somewhere in-between, as Microsoft’s figure also takes into account its pricey range of Surface accessories.

Under the Devices and Consumer Hardware section of Microsoft’s complex financial report, it’s also noted the Surface tablet’s “Cost of Revenue,” which is how much Microsoft spent making and promoting the Surface, which is $932 million. Revenue may have doubled, it’s still a net loss of about $40 million. Not good, but we suppose it’s better than writing off another chunk just as it did with the first Surface.

The Wall Street Journal is initially upbeat about the Surface’s performance, saying Microsoft is “Making a mark” with the tablets. However, it then goes on to point out just how badly its doing in terms of market share, quoting industry analysts IDC’s figure of 3.4 percent. The NPD Group recently gave Windows tablets a U.S. share of 2.2 percent – even worse. In the same report, Android tablet sales were said to be up by 160 percent to nearly a 9 percent share, while the iPad ruled with just shy of 60 percent.

So, Microsoft has certainly chosen the right number – double the revenue – with which to promote Surface sales, but when other indicators are taken into account, it looks like performance has merely risen from dismal to bad. While funky, cheap hardware like the Asus Transformer Book T100 is helping Windows 8’s overall market share, the Surface is still underperforming. And sadly, a lot of it comes down to the design of Windows 8 itself, which seems to be turning off a lot of buyers.

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