Microsoft has lost $1.7 billion trying to make the Surface a hit

[dgstorm]

Microsoft’s Surface Pro 3 tablet might finally be gaining some traction for Microsoft in the tablet market, but the whole Surface venture has come at an enormous cost.Computerworld notices that Microsoft revealed in an 8-K statement filed with the Securities and Exchange Commission this week that it has lost $1.7 billion on its Surface line of tablets so far, which is nearly double the $900 million write down that Microsoft took last year on unsold Surface inventory.

What’s actually really remarkable about this is that Microsoft makes such an insane amount of money that it can afford to shrug off its multiple money-losing consumer electronics bombs. Microsoft’s operating income last quarter was $6.48 billion and its earnings per share only narrowly missed Wall Street expectations after posting better-than-expected earnings the quarter before.

Continue Reading @: http://bgr.com/2014/08/06/microsoft-surface-sales-1-7-billion-loss/

 

[dgstorm]

Despite this, the Surface Pro 3 is an even more amazing product than the first 2 versions of the Surface. It is also doing remarkably well. I suspect we are going to see this product segment from Microsoft continue to gain marketshare.

 

[ipaq_101]

Working in finance, I can tell you that the author of the article is taking a lot of liberties with how he got to his figures, he can speculate all day long, but it's a guess at best. Did MS lose money? Sure, but a software company doesn't become successful hardware maker overnight and the Surface line wasn't created to rake in profits, but rather to showcase Windows 8.1.

It takes long-term planning to realize a vision, the Xbox lost money for years for MS and now it's a powerhouse and has its own eco-system and legions of fans. If profit was the only concern MS had for the Surface Pro line then the idea would have been ditched long ago.

Many times companies spend money to grow other parts of their business, in this case it was to show off Windows 8.1. and kick other Microsoft OEMs in the butt (HP, Dell, Asus, etc.), they all had old outdated designs, now that MS has the Surface Pro line, the OEMs will be forced to innovate and come out with more modern designs.

$1.7B doesn't seem like a lot when you are trying to increase PC sales overall, something that has been dwindling for the past few years and maybe it has been working, because recently PC shipments have started to pick up again.

End Rant.

 

[toaf]

i would bet most of the lost money was from the RT side

 

[drolem]

i would bet most of the lost money was from the RT side

I'm guessing that so far all of their products lost money, but some lost more than others.
They cancelled the Surface 3 and the Surface Mini -- lots of dev money down the drain.
I believe they also had a high return rate, partly due to FW bugs, so with the new CEO, I'm not so sure about their future -- he'll be much more likely to pull the plug than Ballmer.

 

[GreyFox7]

Lost or invested. They could have said were building a completely new device with completely new OS which if unsuccessful would be a complete loss. Although it probably would have been cheaper to do the risks are much greater. In addition that would risk fragmentation between Windows PC and the new OS.

Option two leverages Windows and bridges the new Windows with the old Windows presenting less risk to the established base but will cost more to do. PC vendors are mostly loath to taking big risks and are content to make small tweaks years to year which was clearly not working leading to a stagnant market. MS is pushing Intel technology to its limits and 3 - 4 years ago it was not clear if or when they could respond to ARM technology. If Intel had delivered BroadWell and Braswell in Jan 2014 things would be a little different but only a little.

MS could have gone full on with ARM but that would have its own risks and consequences although I think they crippled RT too much its possible ARM wasn't really up the task. Its also likely there was some appeasement to their established community of partners in that decision. I suspect MS stands ready to pull the trigger on a full ARM deployment if it comes to that which it looks like it wont as long as Intel delivers.

life is a bit more complicated when you work with strategic partners rather than doing everything in house. that said there's nothing stopping any vendor from really turning out cutting edge or greater quality except themselves. Everyone bitches when MS tightens up the hardware requirements but its the broad accommodating hardware specs that make for much heavier software. case in point, VMware vs Xenserver: VMware touts faster boot time but they don't support as much hardware as Xenserver; the extra time is all hardware detection. MS is pushing the technology while, as they have always done, leaving room for partners to do their thing. From time to time it has become necessary to consume a space formerly left for partners while transitioning them to new spaces. Its never been a static world and it surely isn't now.

So what should MS do with the mountain of cash they have? Give it away to shareholders (they'd love that) or invest in pushing the technology. The latter is much better for the company long term and for the economy, the former just fattens the fat cats. Either go all in or go home meaning, spend another two billion if it takes that and two billion more after that, its not like they don't have the money and its going to good use.

 

[annabanana]

Working in finance, I can tell you that the author of the article is taking a lot of liberties with how he got to his figures, he can speculate all day long, but it's a guess at best.

A lot of people, myself included, don't consider BGR a reliable source. "taking a lot of liberties' is their MO. It generates page views.

 

[Liam2349]

I'm guessing that so far all of their products lost money, but some lost more than others.
They cancelled the Surface 3 and the Surface Mini -- lots of dev money down the drain.
I believe they also had a high return rate, partly due to FW bugs, so with the new CEO, I'm not so sure about their future -- he'll be much more likely to pull the plug than Ballmer.

No way, Nadella won't pull out on Surface, he loves it. Everything he's done so far has shown strong support for Surface, and XBOX.

 

[GreyFox7]

Afraid you're wrong if you think Surface is cancelled unless you're referring to the TV show "Surface".

I’ve heard some rumbling that Microsoft’s new CEO wasn’t as big a fan of the Nokia acquisition, but I haven’t heard that he was at all inclined to jump off the Surface bandwagon.

Microsoft has a demonstrated history of patience when it comes to money-losing product lines. Bing will be profitable in the company’s fiscal 2016, Microsoft said in its most recent earnings cycle. The company’s new phone business will be break-even by fiscal 2016 as well, it also indicated. Microsoft is willing to lose billions on Bing, and billions on its new phone hardware project. The latter is even more interesting as Microsoft had to spend more than $7 billion to acquire its shiny new money losing division. That makes Surface’s losses feel mild in comparison..

The purchase of most of Nokia’s hardware assets puts Microsoft in something close to a pot committed position when it comes to building first-party hardware for Windows — it has spent the money, and now it needs to make the bet pay off. That’s going to be expensive. If Microsoft were to drop Surface in the face of the losses it generates, its phone bet makes less sense. Not zero, but a smaller amount. As both hardware projects lose money, and are designed to support and show off the Windows platform, if you cancel one and not the other, what is your strategy?.

Summing, provided that there is a path to something close to break even, and the platform benefits are viewed as material, I think that Microsoft is more than content to keep pushing on with its hardware business..

Stepping back the above only gets us to the point of saying that Surface isn’t likely to be cancelled in the short-term.

http://techcrunch.com/2014/08/07/microsofts-surface-and-the-fine-line-between-investment-and-loss/

 

[alex2020]

Microsoft’s Surface Pro 3 tablet might finally be gaining some traction for Microsoft in the tablet market, but the whole Surface venture has come at an enormous cost.Computerworld notices that Microsoft revealed in an 8-K statement filed with the Securities and Exchange Commission this week that it has lost $1.7 billion on its Surface line of tablets so far, which is nearly double the $900 million write down that Microsoft took last year on unsold Surface inventory.

What’s actually really remarkable about this is that Microsoft makes such an insane amount of money that it can afford to shrug off its multiple money-losing consumer electronics bombs. Microsoft’s operating income last quarter was $6.48 billion and its earnings per share only narrowly missed Wall Street expectations after posting better-than-expected earnings the quarter before.

Continue Reading @: http://bgr.com/2014/08/06/microsoft-surface-sales-1-7-billion-loss/

The SP3 was already a hit; could have saved them from going overboard but its their money and they don't seem to mind!!

 

[ctitanic]

The importance of the Surface for Microsoft goes beyond the money. Before the Surface all we were reading were news about the death of the PC market. The Surface stored to prove that this market can reinvent itself and there is where the real value is for MS, in each PC using Windows, Office and the rest of the Microsoft ecosystem.

 

[Geek.Verve]

I'm sure releasing new versions so quickly doesn't help them clear out their stock. I nearly opted not to buy a SP3 right now, thinking the SP4 may be right around the corner.