Microsoft Surface revenue falls short after Earbuds delay, as AirPods lift Apple results

Surface Earbuds. (Microsoft Photo)

Microsoft’s Surface hardware business reached an all-time high of nearly $2 billion in revenue for the December quarter, but the company indicated that the result would have been higher if not for unspecified “execution challenges” in the consumer side of the Surface business.

The company said the quarterly revenue of $1.98 billion in the Surface business fell short of its internal expectations, indicating a less-than-stellar holiday shopping season for the Surface lineup.

That’s a surprise in part because Microsoft’s big product unveiling prior to the holidays generated lots of positive buzz from the media. However, two of the biggest products it unveiled at the time, the dual-screen Surface Neo and Duo, aren’t due until later this year. And more to the point of missing expectations, the company subsequently delayed the release of its new $249 wireless Surface Earbuds to spring 2020.

Amy Hood, Microsoft’s chief financial officer, told analysts and investors Wednesday afternoon that continued strength in the Surface commercial segment “was partially offset by execution challenges in the consumer segment.”

Hood indicated later on the earnings call that Microsoft hasn’t gotten past those challenges yet: “In Surface, we expect revenue growth in the low single digits as we work through the execution challenges in the consumer segment.”

Microsoft hasn’t yet provided further details on the nature of those challenges, and whether they extend beyond the Surface Earbuds delay.

Earlier this week, Apple credited growth in AirPods and Apple Watch sales for fueling a 37% increase in its Wearables, Home and Accessories segment, which surpassed $10 billion in revenue for Apple’s December quarter, or about 10 percent of Apple’s $91.9 billion in overall revenue for the quarter.

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Surface revenue of $1.98 billion represented about 5.4 percent of Microsoft’s overall revenue of $36.9 billion for the December period, the second quarter of the company’s 2020 fiscal year. That compares to Surface revenue of $1.86 billion, or 5.7 percent of the company’s $32.4 billion in revenue, in the same quarter a year earlier.

Commercial segments are Microsoft’s traditional strength. The company launched products including the Surface Pro 7 and the Surface Laptop 3 during the quarter.

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