Despite 9% growth, Microsoft Surface sales remain stuck at around 1M units

Posted:
in iPad edited July 2016
Microsoft announced quarterly operating profits of just $3.1 billion on revenues of $20.6 billion, hit hard by slow sales of Office, a 17 percent drop in cloud profits, an $870 million decline from Windows Phone and tepid Surface sales that grew by 9 percent year over year but remained below $1 billion.




More Personal Computing revenues down 4% to $8.9 billion



Microsoft's business segment that includes Windows licensing, Xbox, Surface PCs and phones reported revenues down sequentially and year-over-year, hurt in particular by the ongoing collapse of Windows Phone.

Surface revenues increased 9 percent over the year-ago fiscal Q4 ($965 million vs. $888 million), but are down sequentially from the $1.1 billion revenues Microsoft reported in April and down dramatically from peak sales of $1.35 billion it reported in January.

Despite a rosy forecast by IDC claiming that Surface would soon outpace Apple's iPad sales, it appears that Surface is instead stuck in a cycle of quarterly sales that rarely punches past 1 million units.

Apple is set to report its tablet and Mac sales next week, but even after big declines from its peak iPad sales reached in 2014, the company has been selling around ten times as many tablets as Microsoft each quarter over the last year.

In particular, Apple's sales of iPad Pro have trounced Microsoft's Surface sales over the past two quarters. Apple's tablets offer similar performance at a much lower cost compared to Microsoft's Surface.


Microsoft Store, Portland, Oregon


While Apple has maintained streams of buyers in its own retail stores, Microsoft has had a hard time replicating a similar level of interest in its own Surface and Windows Phone products despite copying Apple's retail strategy near verbatim. Microsoft Stores are frequently empty unless the company is throwing a special event or giving products away.

In gaming, Xbox Live added 33 percent more monthly active users, but its sales declined by by $152 million or 9 percent.

Cloud revenues up, profits down



Microsoft's Intelligent Cloud segment which includes Windows Server and Azure, reported revenues of $6.7 billion, a 7 percent increase over the year ago quarter, but operating income of $2.19 billion, a 17 percent decline annually and flat sequentially.

While very different in character from Apple's own iCloud and other Services businesses, Microsoft's cloud segment is often singled out as a bright spot in Microsoft's beleaguered earning announcements.

That's likely one reason why Apple has recently focused attention on its own Services segment, which grew last quarter by 20 percent to become a $6 billion quarterly revenue source with a greater annual run rate than Microsoft's.

Rather than offering commodity cloud computing services to businesses in a crowded market with collapsing profitability, Apple's iCloud earnings come largely from sales of apps, music, storage and related services marketed to a loyal customer base with limited competition for attention.

Office subscriber growth slowing



Microsoft's Productivity and Business Processes segment, which sells Office, reported 5 percent annual revenue growth to reach $6.97 billion, but operating income was down 5 percent, reaching $3 billion.

Subscriber growth in Office 365 plateaued at 23.1 million users, an addition of just 900,000 new subscribers in the quarter.

Microsoft's transition from selling Office licensing to the current Office 365 subscription model over the last decade has resulted in the company's productivity cash cow transitioning from $10.84 billion in annual profits back in 2007 to $12.46 billion this year, an increase of just $1.6 billion across ten years.

The curse of currency exchange



One problem Microsoft currently shares with Apple is the strong U.S. dollar, which effectively reduces the global revenues and profits of both companies.

Microsoft presented its earnings in constant currency "to provide a non-GAAP framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations."

Removing the effect of currency headwinds, the company says it would have achieved $22.6 billion in revenues and $6.2 billion in operating income, or $5.5 billion in net income during the quarter.

Surface revenue growth would have remained at 9 percent even stated in constant currency, and the company's phone-related revenue decline would have been 70 percent rather than 71 percent.
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Comments

  • Reply 1 of 52
    lkrupplkrupp Posts: 7,162member
    Wait till the DED haters start arriving in this thread. The accusations of spin will be flying like tennis balls at the U.S. Open. But the mighty Microsoft is in great shape. It’s only Apple that is doomed to failure and irrelevance don’t you know.
    edited July 2016 ericthehalfbeesockrolidP-DogNCbaconstangjay-tDeelronnetmagemoreckbadmonkbrucemc
  • Reply 2 of 52
    Thats because despite what some like to say, the surface isn't, and is never going to be, as popular as tablets, or the hybrid market won't be such a success. Add the fact that the surface isn't exactly the only windows hybrid around, and there are better options out on the market. I had a surface book, and it isn't practical as a tablet. The surface line in general isn't practical as a tablet.
    calisockrolidDeelronwilliamlondonbadmonkjbdragonjony0indyfx
  • Reply 3 of 52
    calicali Posts: 3,495member
    Somehow Apple is doomed.
    sockrolidP-DogNCbaconstangDeelronnetmagewilliamlondonbadmonkjahbladejbdragonjony0
  • Reply 4 of 52
    cali said:
    Somehow Apple is doomed.
    Yep, if apple announced those kind of results, the media and the analysts would want apple executed. But, because its Microsoft, they get a pass. Hypocrites, wouldn't you say?
    sockrolidP-DogNCbaconstangjay-tDeelronbadmonkjahbladejony0indyfx
  • Reply 5 of 52
    We knew they weren't selling. When MS announces $1.3 billion in Surface sales (last year), and with prices from $799-$2,799, then they obviously didn't sell very many. 
    sockrolidDeelronnetmagewilliamlondonbadmonkbrucemcjbdragonjony0chia
  • Reply 7 of 52
    lkrupp said:
    Wait till the DED haters start arriving in this thread. The accusations of spin will be flying like tennis balls at the U.S. Open. But the mighty Microsoft is in great shape. It’s only Apple that is doomed to failure and irrelevance don’t you know.
    Well, Microsoft did actually beat earnings expectations. Companies announce guidance after the previous quarter, analysts chime in, and then earnings come out after the end of the quarter. In Mr. Softy's case they beat those expectations, so this was actually a pretty good quarter for them as far as Wall Street is concerned. 

    The market will look at Apple's next earnings announcement the same way. It's all about whether you miss, meet or beat earnings expectations. 
    singularitymjhnl
  • Reply 8 of 52
    dreyfus2dreyfus2 Posts: 1,071member
    The college I am lecturing for two days a week gave me a Surface 4 Pro "to see if I like it". I do not want to go into details (too painful), but here is a pretty thorough summary Steve Martin did for me...
    Butidonttweetjbdragon
  • Reply 9 of 52
    quadra 610quadra 610 Posts: 6,744member
    Surface has always been a non-starter. 

    Apparently it's being billed as "just a reference device for the rest of the industry."

    This is somehow acceptable, in some alternate dimension taken to be this one. 

    And Windows Phone, err.... Windows Mobile?
    Windows Mobile Phone? Whatever ridiculous name they've foisted on this abomination, it's a total failure. Readily apparent upon its release, to all except MS and the hapless folk they managed to con into buying one. 

    They're essentially still running on the old Windows + Office snoozefest. Some of which are now "services."

    "Servicing" the competition, essentially.

    Oh, but they do have those Big Ass Glasses.
    That no one can really buy, unless you're a developer and you've got $3000 laying around, or some such nonsense. 


    baconstangDeelron
  • Reply 10 of 52
    larryalarrya Posts: 550member
    lkrupp said:
    Wait till the DED haters start arriving in this thread. The accusations of spin will be flying like tennis balls at the U.S. Open. But the mighty Microsoft is in great shape. It’s only Apple that is doomed to failure and irrelevance don’t you know.
    Well, I wouldn't call myself a "DED Hater", but as much as Microsoft has it coming, there are problems with this article that temper my enthusiasm.  First, it seems a bit disingenuous to compare all iPad sales to Surface, just as it would be to compare iPhone sales to all Android or low-end Samsung sales, but this is what the table does in the linked article.  Only iPad Pro to Surface comparisons make the tiniest bit of sense when considering cost, capability, and expandability. Second, the linked article doesn't offer a breakdown of the 4.9 million detachable tablets, so where is the substantiation of the claim of Apple sales superiority?  Did I miss it?  I do agree that MS completely misses the boat on how a tablet should work, and as is typical, put a new front end on the same old junk.  Finally, it's "based on", not "based off".
    kermit4krazysingularitymnbob1
  • Reply 11 of 52
    michael scripmichael scrip Posts: 1,912member
    Let's be honest... Microsoft isn't known to be a volume hardware seller.

    Their "partners" take care of that.  But Microsoft gets paid for every Windows license that is installed on all that hardware.  They are clearly in a different business than everyone else.

    So I think it's funny that Microsoft is now directly targeting Apple in their Surface commercials:

    "My Mac can't do that"

    Well guess what Microsoft... Apple sells 4 times as many Macs as you sell Surface devices.  (if we must compare hardware sales from these two companies)
    edited July 2016 mwhite
  • Reply 12 of 52
    k2kwk2kw Posts: 1,767member
    Just because MS surface can't beat iPad is no reason to think that the iPad is headed in the right direction.   From Dec 2013 Quarter to Dec 2014 sales fell 22% then to Dec 2015 fell another 21 %.   This despite introducing the new 12.9 inch iPad Pro.

    MS gets the benefit of low expectations because they aren't doing another billion dollar write-off of the Surface.   In that sense their results are a success even if only small.

    But in reality the Surface Pro doesn't compete with the iPad because it is not really a mobile take anywhere computing platform and work on the go.   Its more of a laptop.
    You sit with a surface using traditional apps but can walk and move with an iPad ( like iphone type apps).

    iPad will outsell the Surface for a long, long ... long time.  But it would be nice to see Apple do something to get sells growing again.

    This article just seems to cherry pick points to criticize the MS/surface for not much meaningful reason. At least this time the author didn't personally attack the work of others. 
    cnocbui
  • Reply 13 of 52
    Rayz2016Rayz2016 Posts: 4,717member
    lkrupp said:
    Wait till the DED haters start arriving in this thread. The accusations of spin will be flying like tennis balls at the U.S. Open. But the mighty Microsoft is in great shape. It’s only Apple that is doomed to failure and irrelevance don’t you know.
    Well, Microsoft did actually beat earnings expectations. Companies announce guidance after the previous quarter, analysts chime in, and then earnings come out after the end of the quarter. In Mr. Softy's case they beat those expectations, so this was actually a pretty good quarter for them as far as Wall Street is concerned. 

    The market will look at Apple's next earnings announcement the same way. It's all about whether you miss, meet or beat earnings expectations. 
    Well that depends on how close the analysts stick to the company's guidance. In Apple's case, they come up with numbers that seem to be pulled out of thin air. 
    baconstangnetmagebadmonk
  • Reply 14 of 52
    Microsoft up 4% after-hours on earnings. As far as Wall Street is concerned, Microsoft's Azure Cloud Services business has far greater potential than Apple's iPad business. Let's see what Apple does on earnings. I'd bet Apple misses expectations and the stock goes down at least 4%. As it is, analysts believe Apple's P/E is too high at 10.x while Microsoft's P/E is totally acceptable at 42. It appears as though Tim Cook has pretty much turned Apple into a losing investment with Microsoft easily being valued higher than Apple. Even Microsoft's failures end up pulling in more investors than Apple's successes. That's how it is, so you'd better get used to Apple remaining doomed.
  • Reply 15 of 52
    Forgot to mention, we got a Surface 4 at work. For a specific use it was the best option available. In our case it's used as a portable oscilloscope.
  • Reply 16 of 52
    lkrupp said:
    Wait till the DED haters start arriving in this thread. The accusations of spin will be flying like tennis balls at the U.S. Open. But the mighty Microsoft is in great shape. It’s only Apple that is doomed to failure and irrelevance don’t you know.
    Well, Microsoft did actually beat earnings expectations. Companies announce guidance after the previous quarter, analysts chime in, and then earnings come out after the end of the quarter. In Mr. Softy's case they beat those expectations, so this was actually a pretty good quarter for them as far as Wall Street is concerned. 

    The market will look at Apple's next earnings announcement the same way. It's all about whether you miss, meet or beat earnings expectations. 
    Analysts can easily set Apple's expectations higher so they'll miss. I'm sure it's easy enough to do. Also, even if Apple does meet expectations that won't necessarily cause the share price to rise due to Apple's usual underwhelming guidance. It really doesn't matter, though. The lower the share price stays, the easier it is for Apple to buy back more shares. I wouldn't call it a win-win situation for shareholders but more like a stalemate.
  • Reply 17 of 52
    radarthekatradarthekat Posts: 3,114moderator
    So let me get this straight.  Microsoft has 23.1 million Office 365 subs, at 9.99/month (or $99.99/year).  You mean to tell me that Apple's Music streaming service, also at $9.99/month, but much maligned by all, is nearly closing in on Office 365 in subs and revenues?  Amazing, biotechs are lauded when they create a new $1billion drug, labeled a blockbuster, and Microsoft is seen as becoming a player in on-demand cloud-based software as a service with Office 365, and Tesla is the second coming of someone with its half million Model 3 orders it can't actually deliver for years to come.  But Apple is doomed when it ships a new phone mid-year that will sell $15 billion worth over its three year lifespan, and said to be the laggard in music with its mere 15 million subs.  I could go on...
    edited July 2016 ericthehalfbeepalominechia
  • Reply 18 of 52
    Let's be honest... Microsoft isn't known to be a volume hardware seller.

    Their "partners" take care of that.  But Microsoft gets paid for every Windows license that is installed on all that hardware.  They are clearly in a different business than everyone else.

    So I think it's funny that Microsoft is now directly targeting Apple in their Surface commercials:

    "My Mac can't do that"

    Well guess what Microsoft... Apple sells 4 times as many Macs as you sell Surface devices.  (if we must compare hardware sales from these two companies)
    Not a volume hardware seller -- you mean with the exception of Xbox?
  • Reply 19 of 52
    Wow! The Microsoft Store in Portland, Oregon sells MacBook Pros!
  • Reply 20 of 52
    irelandireland Posts: 17,645member
    So all that astroturfing on Reddit didn't matter.
    edited July 2016
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