Microsoft Now Makes Money From Surface Line, Q1 Sales Reach Almost $1 Billion

SmartAboutThings writes Microsoft has recently published its Q1 fiscal 2015 earnings report, disclosing that it has made $4.5 billion in net income on $23.20 billion in revenue. According to the report, revenue has increased by $4.67 billion, compared to $18.53 billion from the same period last year. However, net income has decreased 14 percent compared to last year's $5.24 billion mainly because of the $1.14 billion cost associated with the integration and restructuring expenses related to the Nokia acquisition.

But what's finally good news for the company is that the Surface gross margin was positive this quarter, which means the company finally starts making money on Surface sales. Microsoft didn't yet reveal Surface sales, but we know that Surface revenue was $908 million this quarter, up a massive 127 percent from the $400 million this time last year. However, if we assume that the average spent amount on the purchase of this year's Surface Pro 3 was around $1000, then we have less than 1 million units sold, which isn't that impressive, but it's a good start.

Comments

Did they make money on Surface?

[Anonymous Coward]

A positive "gross margin" (revenue - direct costs > 0) sounds like a nice way of saying that they made a loss (revenue - direct costs - indirect costs < 0).

Re: Did they make money on Surface?

[PopeRatzo]

I own a Surface Pro 2 and a Surface Pro 3, and use them for portable music production, live performance and field recording. They are by far the best system for such use. It's a tablet, with the touch screen (or stylus) except it can run a full version of ProTools with all the plug-ins and VSTi's you could possibly want. Full USB connectivity for audio interfaces, MIDI controllers and peripherals.

If they made a Macbook with a removable touchscreen, it would be close, but Apple seems more intent on having every pixel in the world. I remember when Apple really catered to musicians (except for their slow adoption of audio driver standards). Now, they cater to people watching cat videos. At the moment, there is no device close to the Surface Pro for this purpose. I don't believe this niche is enough to sustain the Surface Pro by itself, but I'm glad to have them right now. And I hope someone else out there is paying attention, which is why I post a comment just like this every time the Surface comes up on Slashdot.

Not that there's anything wrong with cat videos.

Re: Did they make money on Surface?

[spongman]

of course, anyone who ever said anything nice about a Microsoft product is a shill...

Re: Did they make money on Surface?

[Anonymous Coward]

of course, anyone who ever said anything nice about a Microsoft product is a shill...

Mostly yes; There are a number of MS products which kind of work and are useful (e.g. Windows 7) there are a number which don't really work but you have to use (Excel - often you need to use it because it's broken the same way as the software your accountant uses). There are some products that are so subsidised (like surface discussed here where they are just casually willing to write off the dev costs) that they become quite competitive if you can put up with their quirks (a tablet line with nothing you can use with one hand!). There are very few products that anyone could get "enthusiastic" about.

What Microsoft does well is getting IT people trained up to believe in their stuff. Many of the "shills" don't even realise they are that. They work for small IT companies where the only training they get is MS subsidised. They go through tests where you have to spout MS propaganda to pass ("Q) What is kerberos? A) An old incompatible prototype for Active Directory missing features needed for compatibility"; "Q) who invented the proper Operating System / A) Bill Gates" and then their earning power depends on their ability to spout MS propaganda.

Once a company starts sponsoring PR agencies to shill on the internet, anyone who is helping them, even without knowing it, becomes unethical and complicit, at least negligently, in lying.

Re: Did they make money on Surface?

[Kjella]

No, that's not a correct statement. The indirect costs may not be specifically for a specific Surface unit, but the Surface division does have indirect costs that are specifically its own costs. This means that there are, indeed, indirect costs that are specifically Surface's. The Surface factory pays rent, taxes, electricity and utility. These are all indirect costs, and they are all specifically for Surface.

And parts of the general overhead should also reasonably be allocated to that line, if you run a Surface ad that should probably be specific indirect cost but if you have a stand at a conference promoting all your products then a fraction of that cost should probably be considered Surface marketing costs. All companies do some form of internal cost assignment that is more detailed than what the official accounting practices gives you but since they're easy to manipulate they won't show them to investors as you could easily be sued over giving a false impression of the profitability of one particular product or service.

What's worse when it comes to investment decisions is that even if the costs are properly allocated - a very big topic in itself, particular for example what costs employee time, equipment time, equipment wear, storage or use of consumables instead of direct expenses - is that cutting one product line won't necessarily cut the allocated costs. A textbook example is a chicken farm where you sell chickens breasts, legs and wings. Even if you find out the wings aren't profitable through the cost allocation, it's pretty hard to make chickens with no wings so dropping the product wouldn't actually cut the costs, just force a re-allocation.

Another fun part of this is the impact dropping some products or services can have on others, for example say you run a grocery store and find that selling milk is really making you no money all, in fact you're losing a bit. But if you tried to cut milk from the store, you'd find a lot of customers start shopping elsewhere. It's amazing how many companies have fallen into this trap by cutting auxiliary non-profitable products only to find they were necessary to make the profitable sales. Or in other areas like public transportation, if they cut the off-hour lines people buy a car and use that instead of the bus altogether.

It's not all bean counting 101, like in tech there actually are complex interrelations in business too. Most of it isn't rocket science but if you use too simplistic models it might fall flat on its face in reality. The GAAP figures they publish for the stock market are not made for detail, they're made for being correct and comparable which highly limit their depth because they don't want to give companies the degrees of freedom to manipulate the numbers. Trying to accurately say how a small product is really doing in a big company's books is actually very, very hard.

Microsoft paid the NFL 400 mil to use Surface.

[Anonymous Coward]

What other expenses are Microsoft conveniently ignoring to say they turned a profit?

"Profit marrgin" may actually be repair costs

[Antique Geekmeister]

The Surface has turned out to be both very fragile, and very difficult to repair. The result is that when there is any damage, and with the constantly droppping fire sale prices, the only personnel I know who've bought them have each replaced them twice, within the 2 years that the devices have been available. The result would look like "new sales" because the price of the extended warranty to cover such repairs, along with the time it takes to navigate the repair and replacement system, is better spent earning the money to buy a new one if you insist on continuing with such a fragile device.