For the past 9 months, Microsoft has lost $300 million on Surface

Microsoft’s first generation of Surface tablets wasn’t exactly a “winner” in the marketplace. Microsoft launched the Surface RT (which featured an ARM processor and an ARM-based fork of Windows) in October 2012 and Surface Pro (which featured a more traditional x86 processor and Windows 8) in early 2013. However, neither tablet line resonated well with consumers and Microsoft took a $900 million charge on unsold inventory in July 2013.
Microsoft tried again with the Surface 2 and Surface Pro 2, but a recent report from Computerworld suggests that even though sales are increasing, losses continue to mount for Surface. According to a 10-Q filed the U.S. Securities and Exchange Commission (SEC), the first quarter of 2014 saw Microsoft generate $494 million in revenue from its Surface tablets. While this was a healthy 50 percent gain from the same period a year ago, it was down roughly 45 percent compared to Q4 2013.

Surface 2

However, the most troubling find was that the actual cost of revenue for Surface came in higher at $539 million, making for a $45 million shortfall. This was a 15 percent larger loss than Microsoft witnessed in Q4 2013.
For the past three quarters, Microsoft lost a total of $300 million on its Surface business.
Unfortunately for Microsoft, the more Surface tablets it sells, the more money it loses on the hardware. And the fact that Microsoft often deeply discounts Surface tablets for consumers — as witnessed by a recent promotion where Microsoft is offering a 10% discount for teachers and students in addition to a $100 bonus discount — shows that the losses will likely continue to mount as Microsoft tries to lure customers away from Apple and Samsung in the tablet market.

Sources: Computerworld, Microsoft's 10-Q filing

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