Steve Kovach/Business Insider
Microsoft is bleeding cash from its Surface tablets and may soon have to consider shutting down the business altogether, Computerworld’s Gregg Keizer wrote in a compelling piece against the Surface.
Keizer did his own back-of-the-envelope calculation to estimate that Microsoft has lost $1.73 billion since the Surface’s debut in 2012. The total loss for FY2014 was $680 million, and it was $1.049 million for the year before, according to Keizer.
His calculations also revealed that in the June 2014 quarter alone, the Surface had lost $363 million, the largest quarterly loss for the Surface since Microsoft started releasing quarterly revenue figures.
He said some of the losses was due to massive write-offs from the Surface Mini, which never hit the market despite being ready for production, out of fear it would not sell well.
The loss also included some of the manufacturing cost of the Surface Pro 3, which only started to sell on Aug. 1. Because of its late release, only a small portion of its sales were included in the June quarter’s earnings.
Keizer argued $1.73 billion may not be that big of a loss for a company as big as Microsoft, but it’s still a sizable figure considering it represented 3% of Microsoft’s FY2014 gross margin. He said Microsoft’s year-over-year revenue growth would have been almost 1% had the Surface unit broken even last year.
The Surface was born out of former Microsoft CEO Steve Ballmer’s vision to create a “devices and services” company. But when new CEO Satya Nadella took over in February, he firmly rejected that direction by declaring Microsoft to be a “productivity and platforms” company.
“More recently, we have described ourselves as a ‘devices and services’ company. While the devices and services description was helpful in starting our transformation, we now need to hone in on our unique strategy,” Nadella told his employees in an email last month.
“We will reinvent productivity to empower every person and every organization on the planet to do more and achieve more. ... Our cloud OS represents the largest opportunity given we are working from a position of strength,” he said.
While Nadella never directly commented on the Surface's loss figures, it is becoming increasingly apparent that he needs to reconsider the reason for keeping such a money-losing business.
As Jan Dawson, chief analyst at Jackdaw Research, told Keizer, “If the Surface is one, not growing sales; two, losing money; and three, not creating a market, what’s the point ultimately?”
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