Despite its best efforts, Microsoft is still losing money for every Surface tablet sold, according to a recent SEC filing. And unlike Amazon, which uses its Kindle Fire tablet range as a loss-leader, hoping to recoup its losses via content sales, Microsoft doesn’t have that ability. Once the Surface device is sold, Microsoft make very little income in after sales. In comparison, Microsoft manages to earn around $1.6 billion in royalties from its Android patents.
Lets have a look at the figures. Microsoft made around $494 million for the last quarter which ended March 31st 2014, which was still $45 million short of breaking even. And it actually gets worse, when you take into account the last three-quarters ending March 31st 2014, Surface Tablet sales managed to rake in around $1.18 billion, which resulted in a loss of a whopping $300 million. Every single Surface tablet sale increases the loss. Even for a company with Microsoft’s famously deep pockets, that represents a hefty chunk of cash to just throw away for no return. Microsoft attributed the higher losses to ‘a higher number of units sold’. Microsoft have traditionally been secretive when it comes to numbers relating to the sales of Surface devices, only releasing revenue and gross margins. So it’s virtually impossible to extrapolate just how many devices have been sold. To get an idea of how popular they are, I guess you would have to think of how many you have seen in the wild.
Part of the problem is that Microsoft had previously promised OEM’s that it would charge itself the cost of a Windows licence for every Surface device sold, so as to not give the Surface an undue pricing advantage. This is set to change though, with Microsoft having recently announced that it would allow smart phone manufacturers and OEM’s to use Windows free of charge when producing device with screens smaller than 8 inches. That, along with the much rumoured 8-inch Surface Mini tablet, is what Microsoft is hoping to boost revenue and turn its Devices and Consumer Hardware group into a profitable entity. The move away from the confusing Windows RT will also aid this.
It must be emphasized that $300 million is peanuts for a company like Microsoft, but it’s still a lot of peanuts. Let us know your thoughts in the comments or via our Google Plus page.