14 DAY TRIAL // Back in October 2012, Microsoft launched the Surface RT, its first attempt at the tablet industry, which got many of the OEMs out there worried that Redmond could turn from friend to foe.
Microsoft, however, ignored all these complaints and moved forward, improving the Surface RT on a regular basis and trying to deal with the issues that usually appear when you launch your first new product in an unexplored side of the market, including software problems that were corrected with firmware updates.
It's no secret that the Surface RT didn’t go well. Microsoft was even forced to turn to a $900 million write-down for the first-generation Surface in order to adjust inventories because of unsold units, so it was pretty clear that the company was too optimistic back then.
But it didn’t stop. Panos Panay, the man in charge of the Surface division (and now of premium products), introduced several new tablet models, as follows: Surface Pro, Surface 2, Surface Pro 2, Surface Pro 3, and eventually, the Surface 3. In this exact order.
And right now, it appears that sales of the Surface lineup are finally going well and they seem to increase every single quarter.
Q4 performance
The Surface Pro 3 is driving Microsoft’s tablet sales forward, with the company posting Surface revenues in Q4 of $888 million, which is up 117 percent. Microsoft says that this increase was possible thanks to “the introduction of Surface 3 and healthy attach of accessories.”
What’s more, full fiscal year 2015 revenue exceeded $3.6 billion, according to Microsoft data, which represents an increase of 65 percent.
“Surface gross margin increase $1.3 billion for the full year driven by continued margin improvement and favorable mix of devices sold,” according to Redmond.
In Q3, Microsoft reported Surface revenues of $713 million, up 44 percent from the previous quarter, with the Surface Pro 3 said to be one of the main reasons for the increase.
What’s next for Surface?
Microsoft isn’t talking too much about what’s next for the Surface lineup, but there are some voices claiming that the Surface Pro 4 is already in the works and could arrive sometime this year with Windows 10.
The Surface Pro 4 is expected to be promoted as a laptop replacement, just like the current model, and it might come with a 12-inch screen, a digital pen, and could feature the same removable keyboard.
While it remains tight-lipped on the next Surface, Microsoft is indeed hinting that more premium devices are on their way.
“We more than doubled Surface revenue to nearly $900 million this quarter, capping off a year in which it delivered more than $3.6 billion in revenue. Both consumers and enterprise customers love this device. Surface is clearly a product where we have gotten the formula right, earned fans, and can apply this formula to other parts of the hardware portfolio,” Microsoft CEO Satya Nadella said.
“We clearly are going to have premium first-party portfolio, and you've seen some of the numbers, some of the progress we have made in Surface.”
So it turns out that, in the end, Microsoft has actually managed to become a tablet manufacturer without competing with its own partners. It builds premium tablets, while OEMs are responsible for creating a richer set of options for those who want such a device.
And the same strategy will soon be adopted for phones too. But it remains to be seen how successful this approach can be in a market where OEMs are not yet interested in building Windows phones.