Today in an SEC filing, Microsoft revealed a very interesting fact: Its Surface tablet hybrid line brought in revenue of $853 million in the company’s fiscal 2013. However, the Surface line didn’t become available for sale until October 26, giving it 247 days in the market during the financial period.
That places Surface revenue on a per-day basis at $3.45 million. Extrapolated for a one-year period, that financial rate puts the Surface line on a $1.26 billion per-year run rate. However, I would wager that revenues for Surface were highest at launch of the Surface RT and Pro, and lower in between, so the per-day and per-year estimates could vary.
Reviews of the figure have been decidedly negative. The Next Web’s Josh Ong flatly stated that the revenue figure confirmed that the tablet line is a “financial failure.” Tom Warren over at The Verge noted that the total revenue for the devices is less than the $900 million writedown that Microsoft took during its last quarter. And Todd Bishop of GeekWire underlined that the $853 million in revenue is again less than the $898 million in new costs that Microsoft called “primarily with Windows 8 and Surface.”
If Surface were a standalone business, it would be dead. However, as a Microsoft division, it is anything but.
Microsoft as a company has tectonic financial wealth in the form of past profits stored as cash. It has decided to enter the OEM world, and has, to my knowledge, continued with the Surface project, slow initial sales be damned.
There is a firm, recent precedent for the company to continue to invest in this way: Windows Phone. It took two full years of hard scrabble work to get Windows Phone to a point in which it was healthy enough to walk a bit on its own. Put another way, until Windows Phone 8 and the recent Nokia handsets, the smartphone line was sucking air.
Perhaps not as much as Surface, given that the line of tablets has caused material damage to Microsoft’s short-term profits — the $900 million charge was $0.07 in lost EPS for the company in the last quarter.
However, Microsoft has the money, and if it wants to can continue to pour it into Surface, as it did with Windows Phone, and Bing, and other properties that it finds to be strategically important. Does Microsoft want to cede complete hardware primacy to its OEM partners that have failed for so long to demonstrate innovation and forward-looking thought?
I don’t think so, no. Naturally, Microsoft would prefer if Surface lost less money, but I don’t think that Microsoft is done with this project yet. A decent test: If the rollout of the next-generation Surface line is muted, we could be watching the door close.
Top Image Credit: Vernon Chan