On the Call: Microsoft CFO Talks Surface Sales

The good news: Microsoft’s push into hardware showed some promise in the December quarter, as revenue from its Surface line of tablets more than doubled – to $893 million – from the previous quarter.

The bad news: It’s still losing money.

Following the company’s release of second-quarter earnings, an analyst asked CFO Amy Hood how big the Surface unit has to get before it becomes profitable. Regulatory filings show that Surface cost the company $932 million for the quarter, about $39 million more than it brought in in revenue.

QUESTION: The Surface (is) still losing money, even at the $900 million run rate of revenue in the quarter. Can you give us what type of volume you need to have of that business to make some money?

RESPONSE: (Hood) When we launched Surface just a year ago, our goal was really to create a product that showcased what can happen when you innovate in hardware, in the service and in the software. And, as you know, we’ve learned a lot over the course of this journey and we have to make more meaningful progress. But I think for us, we’ve remained focused as we launched the second version of Surface, to stay focused on those price points and gross margin. And I think we’ve made a leap from v. 1 to v. 2, and I look forward to making leaps as we go forward in our product roadmap. But I do think it’s more to think about it as a goal — as we absolutely have — as we continue to innovate the line.