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Microsoft: The MORE Surfaces it sells, the MORE money it loses

Win 8 slab sales eat their own revenues

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The more Surfaces slabs Microsoft sells, the more the Redmond giant has to shell out.

Microsoft Thursday trumpeted $494m in revenue made from sales of Surface during its third fiscal quarter.

But Microsoft also notched up $539m in costs associated with selling Surface, thereby cancelling out any profits and forcing it to post a loss of $45m for the three months to 31 March.

Microsoft reported $1.8bn in Surface revenue for the nine-month period with, guess what, costs outweighing revenue - $2.1bn. That meant a $300m loss for the period. Microsoft broke out the numbers in its 10-Q.

On the revenue/cost matter for Surface, Microsoft attributed growing revenue and increased costs to more sales of Surface.

Increase in cost of revenue was “due mainly to a higher number of units sold,” Microsoft said in its filing.

The message is clear: nearly a year-and-a-half into Surface, the more Windows 8 slabs Microsoft sells, the more it costs Microsoft.

The company is shy about saying how many Surfaces it has sold so hasn’t given unit shipments. That’s in contrast to its mouthiness on Xbox, in the same business unit as Surface – Devices and Consumer. Microsoft says it sold two million Xbox consoles for the third quarter and 10.6 million for the nine months.

The details emerged after Microsoft chief executive Satya Nadella was wooing Wall Street during the company’s earnings call, assuring them a new era has begun now that Steve Ballmer is no longer at the helm.

It was Nadella’s first quarterly conference call running the company – of which, until late last year, he had been a group president in the server and tools unit.

If he were to sum up the quarter in two words it would be “execution and transition.”

According to Nadella, “we are well on our way” to achieving his vision of going boldly into a “mobile-first, cloud-first world.”

“With every device launch, with every service launch we keep coming back and reinforcing that vision, because at the end of the day, it’s the purpose with which we approached the vision and the execution behind it which is what counts,” Nadella said during results call.

After years of complacency, absenteeism and poorly thought-through ideas, investors were anxious to know whether he has any big strategic reviews planned for the Microsoft business.

“One of the things that I feel as the leadership team we have really picked up the pace on [is] asking the hard questions – what is the believability of any of our plans – and pushing ourselves. Because at the end of the day, to me, I want to be very accountable to you all: to our customers, to our partners, [and] as a team by executing on our plans very well, because at the end of the day that’s what matters,” he said. ®

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