Will Microsoft's Surface line ever make a profit?

Microsoft's quarterly earnings report this week had a bit of deja vu: The company's bottom line once again took a hit because of woes with the Surface line. This time around, it was cancelling the Surface Mini. Will the Surface line ever make a profit?

During the earnings call with analysts, Chief Financial Officer Amy Hood confirmed that Microsoft had killed the Mini, saying:

"During the quarter, we reassessed our product roadmap and decided not to ship a new form factor that was under development. Combined with the transition of production towards our latest Surface offering, we made inventory adjustments which impacted our gross margins."

Let me translate that for you: We killed the Mini, got rid of its inventory, and lost money because of it.

Microsoft didn't reveal exactly how many Minis it abandoned in its "inventory adjustments," and didn't say how much that "impacted gross margins."

It certainly wasn't as bad as the massive $900 million writeoff the company took a year ago on the Surface RT, but still, it's bad news.

There's no way to know whether Microsoft lost money on the Surface line in the last quarter, because the company isn't revealing details. But Jan Dawson, chief analyst at Jackdaw Research told Computerworld that it likely did:

"I think there's a good chance that it did lose money again, especially as they will have spent on marketing Surface Pro 3 in June without seeing a lot of sales yet. That's not necessarily covered in cost of sales, but would affect contribution margin. At low volumes, it's also likely that gross margins would have been low or negative."

A few days after the earnings call, IDC issued a report about tablet sales, and once again, unsurprisingly, Microsoft was not in the top five manufacturers. Apple was on top, followed by Samsung, Lenovo, ASUS and the Acer Group.

So will the Surface line ever make a profit? Certainly not at this rate. And unless Microsoft releases lower-cost devices, it might never get out of the red with the Surface. Surface tablets are high-cost devices, particularly when purchased with covers which double as keyboards. Unless your name is Apple, it's tough to make a profit selling high-end hardware. Microsoft hasn't done it yet, and it's not clear it ever will.

Copyright © 2014 IDG Communications, Inc.

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