Microsoft continues to lose money on the company's Surface tablets, with $1.73 billion worth of losses since the 2012 release of the device.
The disastrous life of the Surface has experienced lower-than-expected sales and massive write-offs in inventories, which has Microsoft coming nowhere close to its goal of challenging Apple as the leader in worldwide tablet computer sales.
Computations made by Computerworld shows that Microsoft lost $1.049 billion in financial year 2013 and $676 million in financial year 2014 due to the Surface, resulting in a total of $1.73 billion in losses over the two-year life of the Surface.
The loss is nowhere near being a backbreaking one for Microsoft, as the company posted a revenue of $87 billion for financial year 2014. However, the importance of $1.73 billion in any business or company could not be overlooked.
If Microsoft was able to just break even with the Surface in financial year 2014, the company's gross margin growth would have increased from 4 percent to 5.2 percent.
"Continued losses will make it harder and harder for Microsoft to keep the Surface project going, so a good performance in the next quarter or two will be critical to justifying its continued existence," wrote Jackdaw Research chief analyst Jan Dawson.
"You can accept some losses for a while, but how sustainable is that in the long term?" Dawson added. "Can you run [into the red] indefinitely?"
Dawson added that Microsoft's new CEO, Satya Nadella, may be less willing to incur the losses for the company as compared to previous CEO Steve Ballmer, under whom the Surface device was launched.
About a year ago, Microsoft announced a $900 million write-off due to excess inventories of the Surface RT. However, during the same time, sales for Microsoft's tablets began to increase, but at the expense of massive price reductions for the devices.
Microsoft slashed 30 percent off from the price of the tablets, with even bigger discounts for businesses and schools. The device began to sell, but the markdowns have severely damaged the profit margins for the Surface.
Microsoft is hopeful that its new device, the Surface Pro 3, will prove to be a better challenger to Apple's iPad tablet. Just a short time after releasing the device into select regions, Microsoft said that it will launch the Surface Pro 3 in 25 more markets by the end of the month, which includes the United Kingdom, China, and several other countries in Europe and Asia.
As early sales of the Surface Pro 3 have shown promise, the whole Surface line has a very long climb to make to establish itself as a worthwhile part of Microsoft's Devices and Consumer division.
"But if the Surface is one, not growing sales; two, losing money; and three, not creating a market, what's the point ultimately?" Dawson asked.
Only time will tell on what Microsoft's plans for its Surface line are.
