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Microsoft's Strong Quarter: 5 Key Facts
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rradina
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rradina,
User Rank: Ninja
1/24/2014 | 12:41:32 PM
Surface 2 million + OEM tablets = ????
The 2 million vs. 25 million looks bleak for touch Windows.  

It's certainly fair to compare a Microsoft device's success to an Apple device's success but Apple is the only game in town for acquiring an iPad.  Although the Surface is as much an ultrabook as it is a tablet in terms of what can be done with it, I don't think everyone appreciates that and have cited its price "more than expected".  While they might love to have one, did that cause them to go to Android, Apple or perhaps an OEM Windows tablet?

Did the earning's report include any information to help us estimate total Windows tablets sold during the holidays? (i.e. Surface + Dell + HP + Asus + ???)  Did several other vendors with smaller and/or cheaper Windows tablets do as well as or better than Microsoft?  If so, what does it look like when total Windows tablets is compared to the iPad?

While I'm sure the iPad still rules the roost in terms of total tablets sold, if perhaps 10 million Windows tablets sold to the iPad's 25 million and such a trend continues, maybe Microsoft's tablet strategy isn't as hopeless as when we look at 2 million vs. 25 million.
Michael Endler
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Michael Endler,
User Rank: Author
1/24/2014 | 12:58:06 PM
Re: Surface 2 million + OEM tablets = ????
Thanks for the comments.

It's true that iPads vs. Surface isn't exactly an apples-to-apples comparison, on a number of levels. Windows tablets vs. iPads would certainly provide another angle. I haven't seen any official sales data from other Windows OEMs, but a bunch of partial data produced by marketing firms and online ad networks suggest that Surface tablets outsold other individual Windows models over the holidays. So while the "25 million vs. 2 million" equation would certainly improve for Microsoft if we were to include other Windows tablets, it's still a pretty lopsided victory for Apple. This is especially true when you consider margins. Microsoft admitted in its SEC filing that it's still losing money making Surface products, and they said previously that the discounted Surface RT was the top-selling model over the holidays. Apple not only sells more tablets but does so at higher margins. If Windows tablets are finding success, it's partially due to their unique utility, but largely because prices (and thus margins) have come way down. Microsoft can still make hardware into a useful business, and I think Windows tablets will find a place-- but they're still a long ways off.

As for the Surface Pro being an Ultrabook-- absolutely. Microsoft initially made the mistake of inviting comparisons between Surface products and iPads. While that comparison makes some sense for the Surface RT and Surface 2, the Pro and Pro 2 are aimed at a different group. Since last summer, Microsoft reps have almost ostentatiously referred to the Surface as an Ultrabook in virtually every conversation I've had with them. I think they'd help that perception, though, if they included the damn keyboard.
Shane M. O'Neill
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Shane M. O'Neill,
User Rank: Author
1/24/2014 | 1:11:37 PM
Is it all bad for Surface?
It says a lot that even when Surface revenue DOUBLES quarter-over-quarter, it still adds up to less than one-tenth of iPad unit sales. On top of that, Microsoft can't enjoy any profits because the cost of doing business with Surface has them $40 million in the hole. Ugh.

But if you're a glass half-full kind of person (and I'm not) wouldn't you say a doubling of revenue at least represents progress in Surface's war of attrition given the rough year the devices had? Consumers are at least warming up to Surface and opening their wallets. I guess we'll have to see if the Surface revenue vs. expenses ratio improves in the coming quarters. If not, Microsoft will just continue to use sweet enterprise profits to feed the elusive consumer beast (i.e. rob Peter to pay Paul).

 
D. Henschen
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D. Henschen,
User Rank: Author
1/24/2014 | 2:53:13 PM
Early "All-In" Bet is paying off.
Here's the key bit for enterprise customers: "SQL Server achieved double-digit revenue growth and cloud services revenue more than doubled, with particularly strong growth in both Office 365 and Windows Azure. Windows revenue from enterprises was also up, propelled partially by companies migrating off of Windows XP."

SQL Server keeps growing -- more of a threat to Oracle and IBM DB2 than Hadoop. Also, Microsoft's early, big-bucks bet on cloud -- with Azure and Office 365 -- is paying off. Ballmer can at least take credit for that.
Michael Endler
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Michael Endler,
User Rank: Author
1/24/2014 | 2:56:37 PM
Re: Early "All-In" Bet is paying off.
Great point, Doug. As much as Ballmer gets slammed for missing mobile, he also oversaw the company as it made aggressive and well-executed moves to become a force in both public and private clouds.
rradina
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rradina,
User Rank: Ninja
1/24/2014 | 3:14:37 PM
Re: Surface 2 million + OEM tablets = ????
They should have decent margins in their holiday sales.  Wasn't the discontinued RT discount probably covered by the $900M accounting adjustment?  It seems like they have a simple volume problem.  The promotional deal with the NFL must have been expensive given the frequency that Surface logos "surface" during games.  Advertising, building their retail stores and tooling Best Buy probably weren't cheap either.  These costs are the same regardless of whether they sell Surface or iPad volumes.  If they can increase to 3M units/quarter, the strategy might be self-supporting.

Regarding the keyboard -- couldn't agree more!  At least include the touch cover keyboard.  If someone wants the type cover, let them upgrade for a reasonable fee.

I'd also like to see Microsoft engineer an upgradable Surface.  After years of buying upgradable hardware, I'd like to be able to buy an entry-level Surface and then incrementally upgrade it.  

Perhaps I have an out-of-band perspective but when purchasing my current 2 year old laptop, physical dimensions, weight, screen, keyboard, battery and touch pad were far more important than RAM, storage and wireless options.  I knew I could add more RAM, swap out the storage and replace the mini-PCI wireless card.  Over the past two years, I have done all those things.
Thomas Claburn
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Thomas Claburn,
User Rank: Author
1/24/2014 | 4:30:18 PM
Re: Early "All-In" Bet is paying off.
Does Microsoft have to remain a hybrid consumer-enterprise business or can it take the path of IBM and sell its consumer assets to focus on more lucrative corporate sales?
Gary_EL
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Gary_EL,
User Rank: Ninja
1/24/2014 | 7:10:15 PM
Re: Early "All-In" Bet is paying off.
It's hard to imagine Microsoft doing what IBM did, because Microsoft's beginnings were with the consumer, or maybe it might even be more correct to say with the hobbyist. Maybe Microsoft will decide to exit the hardware business, but I think the consumer is just part of Microsoft's corporate DNA.
melgross
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melgross,
User Rank: Ninja
1/25/2014 | 5:49:28 AM
Re: Surface 2 million + OEM tablets = ????
It's quite a stretch to believe that third parties sold 8 million Windows tablets. Where do you get that number from? We don't really know if Microsoft actually sold 2 million Surface tablets—it could have been a lot less.
melgross
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melgross,
User Rank: Ninja
1/25/2014 | 5:54:32 AM
Re: Surface 2 million + OEM tablets = ????
If they included a good keyboard, you mean. I'm sorry, but I've used both keyboards, and neither one qualifies as being good. The type keyboard, the better one, is barely acceptable on a table, and unacceptable on my knees. The combo of the tablet and keyboard doesn't compare to a notebook such as a better quality Ultrabook or Macbook Air.
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