Microsoft’s Devices: The Great, the Good, the Unfortunate, and the Invisible

Microsoft's Devices: The Great, the Good, and the Unfortunate

With Microsoft reporting its earnings for the final calendar quarter of 2015, we have some useful data for evaluating how the firm’s devices businesses are doing. And as you should expect, there’s some high points and some not-so-high points.

Complicating matters, Microsoft doesn’t report unit sales figures for certain products … for some reason. So we haven’t seen Surface sales figures in years, or Xbox One sales figures almost ever, but we get Lumia sales figures every quarter. Still, between the earnings report and associated 10Q filing, and some external reports, there’s enough information here to have a reasonable analysis, I think.

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The great: Surface

As I noted in today’s Short Takes, Surface is in fine shape. In fact, it was “the best quarter for Surface ever,” according to Microsoft CEO Satya Nadella.

The numbers: $1.3 billion in revenues, up 29 percent from the $1.1 billion the business generated a year ago. There is no word at all on units sold, of course. But Surface Pro 4 and Surface Book have had incredibly successful launches, and with Surface Book expanding to many new markets in 2016, there’s reason to believe in continued momentum. Plus, we all sort of know/believe that a Surface 4 is coming too.

The other thing I will point out here is that the rampant Surface Book and SP4 reliability issues I’ve written about are clearly not impacting all devices. That suggests that figuring out the problem may not be straightforward, and it could explain why it’s taking Microsoft so long to figure it out. But I’ll double down on what I’ve said all along: The issues can most certainly be solved with firmware updates, and will be. I’ll be writing more about this topic soon, but I feel good about Surface overall.

The good: Xbox One

Yes, Microsoft has long promoted the success of Xbox One sales vs. Xbox 360 sales during similar post-launch time frames. But it is so stung by the sales disparity between Xbox One and the PlayStation 4—long rumored to be 2-in-1 in favor of PS4—that it quickly stopped providing unit sales figures.

So for the earnings report, we get squishy details. Gaming revenue increased 5 percent in the quarter, for example. And “active Xbox Live users” grew to a record high of 48 million … but that is because Microsoft now counts Windows 10 gamers too.

Here’s what’s really happening. During its own earnings conference call, gaming giant EA revealed that Microsoft has sold just 19 million Xbox One consoles, compared to 35.9 million for PS4. And yes, that is just about a 2:1 advantage for PS4, as rumored.

That said, 19 million is nothing to sneeze at. Yes, Xbox 360 eventually hit north of 80 million units, but that took several years and many resales to existing customers. I don’t see Xbox One ever catching up to PS4, but Microsoft will refresh the Xbox One lineup with new (smaller/more efficient) hardware. And it will remain a player, so to speak, in this market. And it helps that Nintendo has pretty much given up on the living room, at least for now.

The unfortunate: Lumia/Windows phone

It’s hard to feel good about Windows phone right now: Microsoft sold just 4.5 million Lumias in the most recent quarter, good for 1.1 percent of the smart phone market. And that’s down from 10.5 million in the same quarter a year ago. It’s even down from the previous (and non-holiday) quarter, which is … alarming, actually. This thing has fallen through the floor faster than anyone really imagined it would.

But it is worth reminding people that Microsoft is simply following through on its promised strategy of July 2015. Which was to reduce its exposure to per-unit losses (Microsoft, like Nokia, loses money on every Lumia) and keep Windows phone in market artificially, on life support, so that it could continue developing a cross platform Windows 10 and the universal apps platform. That is, Windows phone really is dead. But Microsoft will sell you one if you’re a fan.

I’ve said before that Windows phone fans should be happy with this outcome, because the alternative is so terrible to consider. And if you revisit my Lumia 950 review, it’s possible to see this device in a new light. That is, I complained that it’s too expensive, but that may be on purpose, so that Microsoft doesn’t lose money when you buy one. And it is astonishing what happens when you add a high-quality Mozo case to this device. It’s suddenly amazing. (Apps notwithstanding.)

Anyway. Windows phone is a failure, no doubt about it. So much so that it casts serious doubt on the viability of a Surface phone. Looking ahead, I think that Microsoft keeps Windows 10 Mobile around to continue the Windows 10 cross platform dream, but that Windows 10 evolves generally so that hardware makers can add phone/text capabilities to devices as they see fit, but that the notion of a “Windows phone” sort of goes away. It’s just not a real business anymore. Sad but true.

(Side note: To be clear, Lumia is Windows phone. Microsoft sells over 97 percent of all Windows phones in the market.)

The invisible: Microsoft Band

No mentions, nothing. Not even a cricket chirping. Anyone home? I love this device, use it every day. Anyone? Bueller?

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