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Breaking down Microsoft’s Surface investment…

12 Aug 2014

Microsoft has so far failed to make a profit on its Surface product range, with media reports speculating the business division to be as much as US$1.7 billion in the red.

That’s according to ComputerWorld, which claims Redmond lost exactly $1.73 billion on the new hardware, acclimating losses of $676 million and $1.049 billion during FY2014 and FY2013 respectively.

The revelation follows Microsoft’s claims that the flagship hybrid-tablet model, the Surface Pro 3, has enjoyed a “great reception in the US” since launching across America and Canada in late June.

But while the company’s latest hardware release genuinely appears to have hit the ground running, what's next for Redmond’s third generation device?

“We are running this as a business,” said one of Microsoft’s top Surface leaders, Brian Hall, in an interview with TechCrunch previewing the Surface 2 and Surface Pro 2 launch in September last year.

“But we also are running it as a long-term business. Which means that there are different priorities at different times.

“Take dropping the price of [the first-generation Surface RT] to $349. That was to primarily get it into more people’s hands. That’s because we knew that the most strategic thing is more Surface users.

“People that used it loved it and became good advocates. And we had to get that seed planted, watered, and fertilized.

“We want to have a great portfolio. We recognise that people start from price points in their head. And I think that they will see that each of these at its price point is an amazing value.

“If there is someone who wants a tablet that can really be productive.”

A year on...

A year on, and with the Surface Pro 3 set to be released across 25 additional markets on August 28, Hall writes via the company’s Surface Blog that “this month is going to be our best yet”.

“It’s been a great couple months for us in Surface – great reception in the US, businesses and schools realising how productive they can be with Surface, a great launch in Japan, spending time with NFL players on the sidelines, and lots of good feedback and updates to respond to it,” he adds.

A strong few months for Microsoft’s latest release is exactly what technology analyst Jan Dawson, founder and chief analyst at Jackdaw Research, believes can help the tech giant drag its Surface division out of the red.

“Continued losses will make it harder and harder for Microsoft to keep the Surface project going, so a good performance in the next quarter or two will be critical to justifying its continued existence,” he writes.

“If these devices exist to “make the market” as Satya Nadella puts it, continued poor sales and poor margins will undermine that story.

“The next quarter’s results will be interesting to watch, as Microsoft has hinted that early Surface Pro 3 sales were healthy – how healthy remains to be seen.”

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