Microsoft loses, Apple and Samsung profits

Number crunching leads to some not too surprising results for Microsoft’s Surface, which is increasingly looking like a boat anchor, pulling the company down.

The company’s 8-K statement filed with the SEC, posting revenue of $409 million for the quater ending June 30. However, the company has opted to not publish the cost of revenue — and, hence, losses — associated with the tablet. Greg Keizer at Computerworld dug numbers from Microsoft’s 10-K from last Friday, and swizzled up the real numbers:

Calculations by Computerworld show that the Surface’s cost of revenue for the June quarter was $772 million. With revenue of $409 million, that put the tablet in the red to the tune of $363 million, the largest one-quarter loss for the Surface since Microsoft began providing quarterly revenue numbers.

Jan Dawson, chief analyst at Jackdaw Research, figured the June quarter’s cost of revenue at a slightly different $733 million, for a loss of $324 million.

Some of the money in the cost of revenue — and thus in the negative gross margin, or loss — was due to a write-off Microsoft took for the quarter. The write-off, which wasn’t tied to a dollar amount, was to cover costs of designing and producing an unknown number of Surface Mini tablets. “Current year cost of revenue included Surface inventory adjustments resulting from our transition to newer generation devices and a decision to not ship a new form factor,” the company said in the July 22 8-K (emphasis added).

Microsoft bailed on the launch of a Surface Mini, in theory because it would simply have increased the losses for the product line. So, adding it all up, the total loss on Surface in Microsoft’s fiscal year 2014 is $676 million, and $1.049 billion in fiscal year 2013: to date, $1.725 billion lost.

How long will Nadella be willing to take these losses before getting out of this mess. In July he said that ‘we are not in the hardware for hardware sake, and the first-party device portfolio will be aligned to our strategic direction as the productivity and platform company’.

Losing $1.75 billion to demonstrate how Microsoft’s platforms and productivity tools should work is a bad investment, and Microsoft should instead be building out better examples of its technologies for iOS and Android mobile devices.

Nadella has had six months as CEO, and the Surface and Windows phones are a hemorrhage. He needs to a/ stop the bleeding, and b/ move ahead with his new strategy, jettisoning all of Ballmer’s legacy blunders.

º

Meanwhile, Apple and Samsung are making all the profits in smartphones, apparently, according to this chart by Canaccord Genuity, a Canadian bank (via Business Insider). Note Nokia (Microsoft) losing money along with Motorola.

smartphone-profit-share

I guess they will have to start tracking Xiaomi on that chart, going forward, since the company pushed Samsung out of first place in Chinese sales.

 

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Stowe Boyd

Stowe Boyd

Lead analyst Gigaom Research

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