Microsoft earnings reveal new Surface is no match for iPad

Posted:
in iPad
Despite overall increased earnings, Microsoft's latest financial report shows that Surface sales have dropped by 17% -- though the quarter ended before new models intended to compete with Apple's iPad were shipped to customers.

Microsoft Surface sales have declined
Microsoft Surface sales have declined


During Microsoft's legally mandated earnings call, its financial year Q1 2022 saw the company's revenue increase 22% compared to last year. Revenue was $45.3 billion, and the company singled out how its Microsoft Cloud alone service generated $20.7 billion.

However, during the call, chief financial officer Amy Hood also reported a drop in Surface sales -- which she predicts will continue.

"Surface revenue declined 17% and 19% in constant currency on a strong prior year comparable," said Hood during the call. "In Surface, we expect revenue to decline in the single digits as we continue to work through supply chain uncertainty particularly in our premium devices."

Microsoft's Q1 2022 ended September 30, 2021. Just prior to that, the company launched the Surface Laptop Studio, Surface Pro 8, and Surface Duo 2 in mid-September 2021, but units were not shipped until early October.

Consequently, demand for the previous models would be expected to dip between the announcement and shipping of the newer versions, but Microsoft's Amy Hood did not attribute the drop to that. Instead, she said that the decrease was because the figures come after strong results the previous year.

For the next quarter, at least, Microsoft also expects the Surface to be affected by component shortages.

The Xbox has also seen shortages, but Hood says that Microsoft shipped "more Xbox Series X and S consoles than expected," and that, "demand continues to exceed supply."

The quarter also saw the release of the latest version of Windows, and CEO Satya Nadella says the company is "delighted" with the response.

"Earlier this month, we launched Windows 11, the biggest update to our operating system in a decade," he said on the call. "When I step back and reflect on the future of how we work, connect, and play, one thing is clear: the PC will be more critical than ever."

"There has been a structural shift in PC demand emerging from this pandemic," he continued. "And we are delighted with the early response to Windows 11. With every new generation of Windows, we also unlock the next generation of hardware innovation across our ecosystem."

Read on AppleInsider

Comments

  • Reply 1 of 19
    "During Microsoft's legally mandated earnings call..."

    Really odd phrasing.  Contextually, "legally mandated" implies they're only making the earnings call because they are required to do so by law.  It's a simple earnings call.  Publicly traded companies do them all the time.  During Microsoft's earnings call is how that should be written, imo.  Afaik, earnings call aren't even legally mandated.

    On topic: Surface devices have never been competition for iPads or Macs.  Never will be either.  Sales Numbers of Surface (hmmmm... could be a cool band name :smile: ) devices have always been teeny tiny compared to iPads or Macs, and even smaller compared to PC's and Android tablets.  Heck Chromebooks blew past Surface devices in sales numbers.


    edited October 28 iOS_Guy80cincyteemuthuk_vanalingammike1narwhalmagman1979jony0
  • Reply 2 of 19
    crowleycrowley Posts: 9,124member
    Surface is just a hobby for them.  Not a surprise to anyone.
    narwhalwatto_cobra
  • Reply 3 of 19
    AppleZuluAppleZulu Posts: 1,273member
    What? I thought Surface was the raging 2-in-1 success that everyone wants, and that Apple is supposed to copy instead of making separate iPads and MacBooks that nobody wants because they don’t do all the things that a Surface does. 

    At least that’s what I keep reading on these comment boards. 
    foregoneconclusionlkruppmagman1979jas99robabawilliamlondonrezwitswatto_cobrajony0
  • Reply 4 of 19
    danvmdanvm Posts: 1,179member
    AppleZulu said:
    What? I thought Surface was the raging 2-in-1 success that everyone wants, and that Apple is supposed to copy instead of making separate iPads and MacBooks that nobody wants because they don’t do all the things that a Surface does

    Maybe you haven't noticed, but Apple already some features of the Surface Pro to improve the iPad Pro.  For example, Windows Hello, Surface Pen, Multitasking app in touch UI, detachable keyboard + trackpad.  
  • Reply 5 of 19
    "During Microsoft's legally mandated earnings call..."

    Really odd phrasing.  Contextually, "legally mandated" implies they're only making the earnings call because they are required to do so by law.  It's a simple earnings call.  Publicly traded companies do them all the time.  During Microsoft's earnings call is how that should be written, imo.  Afaik, earnings call aren't even legally mandated.
    My very first thought. Makes it seem as though Microsoft is trying to hide information somehow.
    mike1narwhalCloudTalkinwatto_cobra
  • Reply 6 of 19
    crowley said:
    Surface is just a hobby for them.  Not a surprise to anyone.
    It's a hobby now. I don't think that's what they had in mind for it, though.  :)
    igorskyjas99rezwitswatto_cobrajony0
  • Reply 7 of 19
    mike1mike1 Posts: 2,813member
    cincytee said:
    "During Microsoft's legally mandated earnings call..."

    Really odd phrasing.  Contextually, "legally mandated" implies they're only making the earnings call because they are required to do so by law.  It's a simple earnings call.  Publicly traded companies do them all the time.  During Microsoft's earnings call is how that should be written, imo.  Afaik, earnings call aren't even legally mandated.
    My very first thought. Makes it seem as though Microsoft is trying to hide information somehow.
    I thought the same thing. Like they were forced to have an earnings call.
    narwhalwatto_cobra
  • Reply 8 of 19
    igorskyigorsky Posts: 598member
    crowley said:
    Surface is just a hobby for them.  Not a surprise to anyone.
    Really?  A lot of effort on their part for a hobby.
    williamlondonwatto_cobra
  • Reply 9 of 19
    Surface is a confusing device because it's neither a laptop nor a tablet. People rather get real laptop for real job and iPad/Android tablets for fun because they have more apps especially.
    jas99watto_cobra
  • Reply 10 of 19
    igorsky said:
    crowley said:
    Surface is just a hobby for them.  Not a surprise to anyone.
    Really?  A lot of effort on their part for a hobby.
    Yes, Surface is a hobby for them.They never had any intention to compete with windows OEM's.That's why surface devices were really expensive and were beyond normal people reach for years.
    MacsWithPenguinswatto_cobra
  • Reply 11 of 19
    lkrupplkrupp Posts: 9,637member
    cincytee said:
    crowley said:
    Surface is just a hobby for them.  Not a surprise to anyone.
    It's a hobby now. I don't think that's what they had in mind for it, though.  :)
    Like the Zune and the Windows Phone we will wake up one morning to find it has been discontinued. The drag on earnings will eventually get the trigger pulled.
    magman1979jas99rezwitswatto_cobrajony0
  • Reply 12 of 19
    I know this an Apple user forum, so naturally there is not as much engagement with Microsoft news here. However, I know a few things about this after reading about it years ago on the WindowsCentral website in particular, that the Surface line of products with the Windows OS on them, was not designed to overtake the PC industry in sales and make Microsoft the global leader and supplier of laptops for Windows PC customers. Surface was put out as a reference computer that manufacturers could use as inspiration, as a template if you will, to build their own cool and innovative design from. Microsoft looked at the market many years ago and probably realized that they had this vision for a tablet-friendly OS (Windows 8 at first) and by making the Surface laptop hardware they could demo to laptop manufacturer what the future looked like for the Windows platform.

    To be clear: Microsoft has restrictions on how they price their Surface computers depending on which version of their own OS they use. For instance, if they use Windows 10 Home on a Surface laptop, it must be cheaper than a Surface laptop running Windows 10 Professional. Microsoft also puts exaggerated prices on their Surface line of PCs to not upset the big players in the PC market such as Dell, HP, Lenovo, et al. Sales of the Surface computers is a nice income for Microsoft, but it's not meant to compete fiercely with others.

    As far as I know, Google looked at the Nexus Android phones and tablets as reference products as well, but the Google Pixel seems to be made to intentionally compete with others such as Samsung and BBK.
    narwhal
  • Reply 13 of 19
    thttht Posts: 4,131member
    The news here doesn't appear bad to me, and it appears totally plausible. Last quarter, Surface devices were at the tail end of their refresh cycle, so sales inevitably were declining. This coming quarter seems rife with supply chain issues for everyone, so expecting a decline in YoY sales is not a big deal. As long as they recover in the succeeding quarters and are operating at a 1b to 2b revenue per quarter, I think MS is pretty happy with it. The revenue appears to be enough to support continuing hardware development of Surface devices, which has been going for a long time now. That's a success.

    Maybe the Fall quarter outlook speaks to MS not having Tim Cook levels of supply chain management, but who does?
    narwhal
  • Reply 14 of 19
    I know this an Apple user forum, so naturally there is not as much engagement with Microsoft news here. However, I know a few things about this after reading about it years ago on the WindowsCentral website in particular, that the Surface line of products with the Windows OS on them, was not designed to overtake the PC industry in sales and make Microsoft the global leader and supplier of laptops for Windows PC customers. Surface was put out as a reference computer that manufacturers could use as inspiration, as a template if you will, to build their own cool and innovative design from. Microsoft looked at the market many years ago and probably realized that they had this vision for a tablet-friendly OS (Windows 8 at first) and by making the Surface laptop hardware they could demo to laptop manufacturer what the future looked like for the Windows platform.

    To be clear: Microsoft has restrictions on how they price their Surface computers depending on which version of their own OS they use. For instance, if they use Windows 10 Home on a Surface laptop, it must be cheaper than a Surface laptop running Windows 10 Professional. Microsoft also puts exaggerated prices on their Surface line of PCs to not upset the big players in the PC market such as Dell, HP, Lenovo, et al. Sales of the Surface computers is a nice income for Microsoft, but it's not meant to compete fiercely with others.

    As far as I know, Google looked at the Nexus Android phones and tablets as reference products as well, but the Google Pixel seems to be made to intentionally compete with others such as Samsung and BBK.
    Nailed it.
    MacsWithPenguins
  • Reply 15 of 19
    lkrupp said:
    cincytee said:
    crowley said:
    Surface is just a hobby for them.  Not a surprise to anyone.
    It's a hobby now. I don't think that's what they had in mind for it, though.  :)
    Like the Zune and the Windows Phone we will wake up one morning to find it has been discontinued. The drag on earnings will eventually get the trigger pulled.
    Stupid comparison.They launched Windows phones to compete while they launched surface devices to inspire Windows OEM's.Surface was never about making money.
    williamlondon
  • Reply 15 of 19
    lkrupp said:
    cincytee said:
    crowley said:
    Surface is just a hobby for them.  Not a surprise to anyone.
    It's a hobby now. I don't think that's what they had in mind for it, though.  :)
    Like the Zune and the Windows Phone we will wake up one morning to find it has been discontinued. The drag on earnings will eventually get the trigger pulled.
    Apple to oranges.They launched Windows phones to compete while they created surface devices to inspire Windows OEM's to do better in premium market.Surface devices were never about making money else it would have been priced competitively.
    williamlondon
  • Reply 17 of 19
    thttht Posts: 4,131member
    I know this an Apple user forum, so naturally there is not as much engagement with Microsoft news here. However, I know a few things about this after reading about it years ago on the WindowsCentral website in particular, that the Surface line of products with the Windows OS on them, was not designed to overtake the PC industry in sales and make Microsoft the global leader and supplier of laptops for Windows PC customers. Surface was put out as a reference computer that manufacturers could use as inspiration, as a template if you will, to build their own cool and innovative design from. Microsoft looked at the market many years ago and probably realized that they had this vision for a tablet-friendly OS (Windows 8 at first) and by making the Surface laptop hardware they could demo to laptop manufacturer what the future looked like for the Windows platform.

    To be clear: Microsoft has restrictions on how they price their Surface computers depending on which version of their own OS they use. For instance, if they use Windows 10 Home on a Surface laptop, it must be cheaper than a Surface laptop running Windows 10 Professional. Microsoft also puts exaggerated prices on their Surface line of PCs to not upset the big players in the PC market such as Dell, HP, Lenovo, et al. Sales of the Surface computers is a nice income for Microsoft, but it's not meant to compete fiercely with others.
    I largely disagree with this take. It's definitely one of those a posteriori rationales that tries to fit disparate bits of information to create an altruistic story. I hear it from MS fans a lot too, but it doesn't make sense to me.

    Reference computers don't go on sale. They are the concept cars of the computer world. MS can go design and engineer a concept laptop, show it around trade shows and to their OEMs, who can go build it themselves, to the specification of the reference computer, or something similar. By putting it up for sale, it is in direct competition with their OEMs. You do not see the ad dollars that MS has spent on Surface and see it as anything other than trying to sell as many Surface devices as possible.

    Then, if I was a large Windows OEM, I would view MS's premium price strategy as a direct assault on the most profitable end of the sales spectrum. It is taking $4b to $6b per year, in the premium end of the market, out of Windows OEMs' pockets and putting them into Microsoft's pocket. That sounds quite upsetting. They may not sell a lot of units, but they are selling a lot of units in the most profitable part of the market. This product strategy has basically been the Apple playbook for the past 24 years: try to take the premium end of the market.

    And the reason of "MS showing OEMs how to build tablet computers" is even stranger. Tablets and 2-in-1 computers have been running Windows tablet operating systems for 20 years now. The first release was in 2002! OEMs have been building Windows Tablet PC computers of all shapes and sizes since then. If anything, the Surface project at MS was started as a response to iPad sales. From 2010 to 2012, iPads sold very very well. Everyone was thinking that the post-PC world was coming and Apple got the form factor right with a slate. MS did the right thing and responded with the Surface devices to make sure they have an entrant in the post-PC world. The post-PC world as a market transition fizzled out. Even so, MS did even better by continuing to iterate. They have been successful enough to continue. Good for Microsoft.

    What's disappointing is we are basically where we were in the aughts with Windows Tablet PC Edition computers. They are basically just laptops with a touch display and stylus input. People are using Surface devices, 2-in-1's the same way. The only big difference is the components got small enough to fit behind the display versus under the keyboard, but they are primarily still used as laptops 95% of the time. And, Apple's strange reluctance to implement high level computer features for their iPads has retarded its use in the PC market. It really hasn't done touch computing many favors either. There's really just too much drag from software.
    muthuk_vanalingamforegoneconclusion
  • Reply 18 of 19
    davgregdavgreg Posts: 921member
    Having owned or currently own a Surface Pro, MacBook Pro, MacBook Air, iPad Pro, Mac mini, iPad Mini, etc. 

    Unless you just absolutely need a Windows PC you are far better off with an iPad Air or iPad Pro if you want a tablet device. iPad OS is simply more stable and the devices more powerful. They also have better resale value when you are done.

    Parallels Access will allow you to run Windows app remotely on your iPad as if they were native apps on iPad OS.

    With Office and many other suites of SW having migrated to cloud computing the reasons to buy any Windows PC continue to diminish. 
    narwhaljas99rezwits
  • Reply 19 of 19
    alanhalanh Posts: 73member
    "During Microsoft's legally mandated earnings call..."

    Really odd phrasing.  Contextually, "legally mandated" implies they're only making the earnings call because they are required to do so by law.  It's a simple earnings call.  Publicly traded companies do them all the time.  During Microsoft's earnings call is how that should be written, imo.  Afaik, earnings call aren't even legally mandated.

    On topic: Surface devices have never been competition for iPads or Macs.  Never will be either.  Sales Numbers of Surface (hmmmm... could be a cool band name :smile: ) devices have always been teeny tiny compared to iPads or Macs, and even smaller compared to PC's and Android tablets.  Heck Chromebooks blew past Surface devices in sales numbers.



    "its Microsoft Cloud alone service generated $20.7 billion." is strange phrasing too.

    I think was meant to read "its Microsoft Cloud service alone generated $20.7 billion."





    williamlondon
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