Surface’s Solid Quarter Lends Credibility To Microsoft’s Strategic Choices

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Update: As The Verge’s Tom Warren pointed out, I did some math wrong. The cost of Surface revenue was $39 million more than its top line. Not $100 million. I don’t know how I managed to get that wrong. I apologize. This post as been corrected.

If at first you don’t succeed, take a $900 million charge and try again. At least if you’re Microsoft.

Earlier today Microsoft reported Surface revenue of $893 million in its most recent quarter, up from $400 million in the preceding period. The company also indicated that it doubled its unit volume over the time period.

Surface as a project has been an odd duckling for Redmond. Announced in Los Angeles of all places, the effort managed to attract endless attention early in its life: Microsoft becoming an OEM? Unthinkable. Compare Surface’s journey to that of Windows 8 — itself a radical change from The Windows You Knew — and the larger picture of a PC’s potential became occluded.

And then of course it all went sideways. The Surface RT sold poorly, the Surface Pro had promise but lacked polish, and Windows 8 itself was a bit of a hot mess. PC sales cratered and Microsoft had to write down a huge sum. 

Publicly the company took a pounding: PCs were over, Windows 8 was doomed, and Surface was a joke. Sent from my iPhone.

Now, the PC market is reaching for unit volume stability, Surface revenue for the company’s fiscal second quarter (that’s calendar Q4 of course) more than doubled, and, importantly, was larger than the company’s entire fiscal 2013 Surface revenue of $853 million. And Windows 8.1 has moved the company closer to having a modern and usable operating system that can extend across device classes.

Work done? God no.

As Peter Bright noted, Microsoft lists the cost of Surface revenue for the quarter at $932 million. So the company lost $100 million $39 million on Surface in the quarter. That’s something that needs to be flipped upside down. I think that the company is profitable on a marginal device basis, but the larger Surface expense set yet outstrips its incomes.

Still, today, for maybe an afternoon, Microsoft can afford a short break. Its bet that in-house hardware and an operating system chock-full of its own — and often new — services would create a solid computing experience has been almost borne out.

One solid quarter does not a rebound make. The PC market is still contracting, Windows 8.x still needs help and OEMs are still not making machines at the quality level they need to be. But a good quarter can be a decent midpoint in a comeback.

The only thing that we do know is that the long bets Microsoft made on Surface are paying off.

Who would have thought?