Microsoft's Surface Tablet Shows Signs of Life

Strong sales gains suggest that Microsoft may be turning a corner in its lopsided battle against Apple's iPad and a flood of Google Android tablets.

Microsoft's Surface tablet, while not setting sales records, is looking like less of a dud.

After markets closed on Jan. 23, the company announced a record-setting second quarter. The company generated $24.52 billion in sales in the three months ending Dec. 31, 2013, and beat the Street with earnings of $0.78 per share on profits of $6.56 billion.

The Redmond, Wash.-based tech titan credited its stellar financials, in part, to strong demand for its enterprise software offerings and brisk adoption of its consumer electronics offerings, including its Surface tablet line. "Our Commercial segment continues to outpace the overall market, and our Devices and Consumer segment had a great holiday quarter," said CEO Steve Ballmer in a company statement.

Surface revenues climbed to $893 million during the second quarter of its 2014 fiscal year compared with $400 million in Q1. In total, revenues in Microsoft's Devices and Consumer segment rose 13 percent year-over-year to reach $11.91 billion, $4.7 billion of which can be attributed to the company's hardware.

During an investors' conference call, Microsoft CFO Amy Hood said that demand for the company's Surface product portfolio, which includes an ARM-friendly version of the slate that runs Windows RT and Pro models that run the full-fledged Windows 8, "continued to grow, benefiting from improved execution at retail and favorable reviews of the new Surface devices." She added that "both units and revenue more than doubled this quarter" as more customers warmed up to a device that straddles the fence between desktop and tablet computing paradigms.

"We feel good about the progress we have made over the past couple of quarters, and are enthusiastic about the overall opportunity ahead with Surface," enthused Hood.

Microsoft is positively upbeat, at least compared to last summer when the company announced that it had taken a $900 million write-off due to slack Surface RT demand.

"We reduced the price of Surface RT by $150 to $349 per device. As a result of this price change, as well as inventory adjustments for related parts and accessories, we recorded a $900 million charge to our income statement," said Hood during a July 18 earnings call. Ballmer would later address the issue during an internal town hall meeting by saying, simply, "We built a few more devices than we could sell."

Regardless of Surface's gains, the tablets aren't driving profits for the company. "Microsoft doesn't say how many of the devices it sells, and the company loses money on Surface, which came out with fresh versions in October," reported Shira Ovide of The Wall Street Journal.

Microsoft expects hardware revenue to reach $1.9 billion to $2.0 billion in revenue during the current quarter, due to "continued post launch momentum with Surface 2, Surface Pro 2" and the company's strong-selling Xbox One console, said Hood.

Pedro Hernandez

Pedro Hernandez

Pedro Hernandez is a contributor to eWEEK and the IT Business Edge Network, the network for technology professionals. Previously, he served as a managing editor for the network of...