Microsoft Posts Mixed Results for Windows and Surface

Posted on January 27, 2021 by Paul Thurrott in Hardware, Microsoft Surface, Mobile, Windows 10 with 36 Comments

With PC demand at a years-long high, Surface barely moved in the needle in the most recent quarter, and Windows saw mixed results.

Let’s discuss Surface first, as it’s such a short conversation: Microsoft barely mentioned Surface in its post-earnings conference call.

“The overall PC market was stronger than expected, benefiting our Windows OEM, Office consumer, and Surface businesses,” Microsoft CEO Satya Nadella said before dropping the bombshell: Though Surface finally exceeded the $2 billion revenue market, if barely, Surface revenues were only up 3 percent year-over-year (YOY). That’s a stunning disappointment.

As for Windows, it was all over the map.

“We added more new [PCs] running Windows 10 this quarter than ever before,” Mr. Nadella noted. That makes sense, and it isn’t surprising either: PC sales in 2020 were higher than they had been in over 5 years, and Windows 10 had launched a bit less than 5 years earlier.

Overall revenue growth from Windows sales to PC makers was up just 1 percent YOY, which seems a bit odd, but as Microsoft noted, that’s because the same quarter one year ago saw a big jump from the end of support for Windows 7. That said, while Windows Home sales were up 24 percent YOY, Windows Pro sales were down 9 percent. Microsoft also noted that Windows Commercial products and cloud services revenue grew 10 percent in the quarter.

Looking ahead, Microsoft expects overall PC maker revenue growth to be “in the low-single digits,” again citing the Windows 7 upgrade cycle impact from the previous year. And it expects Windows commercial products and cloud services growth to be in “the low to mid-teens” thanks to demand for Microsoft 365 and advanced security solutions.

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Comments (36)

36 responses to “Microsoft Posts Mixed Results for Windows and Surface”

  1. madthinus

    You cannot be a PC manufacturer and sell several products on the older generation hardware. They need to refresh products more regularly and with lockstep of Intel / AMD and Qualcomm.

  2. ngc224

    “Surface revenue was not a ‘stunning disappointment,’ but expected”

    Rubino throwing shade.

    • ikjadoon

      In reply to ngc224:

      Rubino's "shade" is more misdirection. Frankly a little stunned at how deeply misleading it is sometimes.

      "It's premium! You can't expect much growth! It was those darned Chromebooks that sold well!"

      — MacOS devices are premium, too; still up 48% units YoY. 

      "Microsoft's stores! The stores! They have no stores!"

      — Apple had to close its retail stores, too; still up 48% units YoY. 

      "IDC said the market growth was 13%? Wrong! The PC industry only grew 5%, actually, according to Gartner!"

      — Gartner also said in the next paragraph that MacOS devices were up 33% YoY (IDC says 48%).

      "Surface is a North Star, ya grumps. So what if it's 3% growth? Selling more units, in contradiction to all known business plans, was never the goal."

      — Companies that have sustained consumer growth become north stars. Thus, PC hardware OEMs are far more eager to copy Apple products than Surface products. PC hardware OEMs want growth; anybody can make "better" devices if you charge $1000, plus $300 for 128 GB -> 256GB SSD upgrades (see SP7). 

      Perhaps shocking but, PC hardware OEMs actually did not love detachables, proprietary charging ports, crazy form factors like whiteboards and folding phones, 3:2 displays (instead 16:10), etc.

      Paul is being genuine here. Anyone who is looking at this objectively can see Surface really did screw the pooch here, relative to its competitors and relative to Microsoft.

      PC Sales Remain on Fire as Fourth Quarter Shipments Grow 26.1% Over the Previous Year, According to IDC

      Gartner Says Worldwide PC Shipments Grew 10.7% in Fourth Quarter of 2020 and 4.8% for the Year

      • ngc224

        In reply to ikjadoon:

        Unfortunately, it’s far more sinister than even “misdirection.” Does Microsoft’s think its unholy (illegal) alliance with Windows Central (and almost all other sites) is helping its messaging?

        The fake commenters, the fake twitter accounts, the fake “leakers,” the fake Redditors, the fake YouTube channels, the fake reviews – All will be exposed.

        This is not going to end well.

  3. rbgaynor

    In reply to MutualCore:

    Not even close. The non-holiday quarters have significantly lower sales than the holiday quarter, roughly $1.3 billion each, making their yearly total less than $6 billion. With the pandemic boom in 2020 I suspect a lot of PC makers will see a soft 2021.

  4. spiderman2

    In reply to MutualCore:

    LOL and now I even read that they're trying to emulate apple, while apple "got inspirede" by MS in the latest 9 years ... apple fanboys are so cute

    • Greg Green

      In reply to spiderman2:

      I don’t think MS inspired anyone in the last 9 years, we just wrapped up the lost decade of MS. Windows 8, windows phone, Nokia, WinRT, Xbox One as a media center, retail stores, Internet Explorer, Edge v1, plus whatever little side projects they abandoned.

  5. bkkcanuck

    "Overall revenue growth from Windows sales to PC makers was up just 1 percent YOY, which seems a bit odd, but as Microsoft noted, that’s because the same quarter one year ago saw a big jump from the end of support for Windows 7."

    That makes no sense, Microsoft does not sell "upgrades" for new PC sales to PC makers... These would all be new sales for new hardware... and hardware has been in short supply do to higher sales of computers (supposedly).

  6. mmurfin87

    The Surface and Windows are now both stymied by the smoking ruins of the tablet interface. After it was walked back in 8.1 (or whenever), they never touched it again and that was a mistake.

    Also, remind me why live tiles never made it to the desktop to augment icons?

    • jumpingjackflash5

      In reply to mmurfin87:

      Yes if live tiles can be put on the desktop (at least limited number of them) that would have been great. Unfortunately windows is going downhill very fast. I use them, liked them, but if it goes like this I might switch also to some else OS in the future.

  7. Patrick3D

    Surface didn't sell well because businesses are shuttered for quarantine with people working from home on their own equipment or equipment purchased locally from Best Buy, etc... Surface gets used in factories and other places that are closed or have reduced staff. That and schools being closed prevents student sales.

    • wright_is

      In reply to Patrick3D:

      Not around here. Because of GDPR, our company has strict rules. Company data = company device, private data = private device.

      We've been issuing Dell laptops as quickly as we can get them.

      Surface falls out for a couple of reasons, but the primary one is, we have settled on universal USB-C docks in meeting rooms and people's desks. If a laptop can't charge over USB-C and can't do video and network out over a USB-C dock, it isn't on our list of approved devices.

      Funnily enough, I have an original Surface Book sitting here in my home office, I picked it up from an employee last week who is having to go back into the laboratory to work. The screen has a green stripe down it (probably dodgy connector in the screen matrix), but it won't be replaced by another Surface device.

      • winbookxl2

        In reply to wright_is:

        I agree all of our new devices must support USB C charging, docking for Mac and PC. If Apple reverts back to a Magsafe solution in its new upcoming Macbook Pro then adios, too much hassle with dongles that are lost, broken, or easily forgotten at other locations.

  8. matsan

    In reply to MutualCore:

    Revenue isn’t the same as profit and I haven’t seen a specific margin or profit for the Surface line.

  9. Greg Green

    In reply to MutualCore:

    I think it’s only $2b this quarter. As Paul explains on Petri:

    “$2+ billion quarter in revenues....But that figure is just a 3 percent gain over the same quarter a year ago, a stunning disappointment given that it was the holiday quarter of a pandemic year in which PCs were hard to find. And then Microsoft barely mentioned Surface during its post-earnings conference call, a telling sign that the software giant is not impressed with its performance.”

    and that’s revenue, not profits.

  10. ikjadoon

    In reply to MutualCore:

    It's relative; Microsoft gets compared to its competitors, not to a $0/year benchmark.

    $8bn that barely grew (2%!!), while the entire US desktop & laptop market exploded (often 20% YoY gains).

  11. ikjadoon

    In reply to MutualCore:

    Revenue can have a very distant relationship from units & market share. For a company that charges $300+ for miniscule 128GB -> 256 GB SSD upgrades on its Surface Pro 7, yeah, revenues are not particularly "exciting" when they're accompanied by very small growth especially in the consumer market.

    Selling fewer units of expensive PC hardware isn't really moving the needle for PC OEMs (as Surface was intended to do).

    Businesses, at some point, just don't want to pay the very high premium. Surface's "down market" options (Surface Laptop Go, etc.) are not really that competitive.

  12. anoldamigauser

    The consensus estimate for growth from Windows was -10%, so the 1% growth was actually a good beat from Wall Street's perspective.

    Not sure why the estimate would have been so low considering PC sales are up due to the pandemic, but that is why I am not a Wall Street analyst.

  13. shark47

    Not sure what Satya sees in Panos Panay, whose legacy has included multiple failed Surface devices.

    • codymesh

      In reply to shark47:

      Steve Ballmer was CEO during Surface's initial stumbles.

    • b6gd

      In reply to shark47:

      I would agree. The Surface events where Panos leads them, feel like they are trying to emulate an Apple event and they are sad, like a comical party skit on Apple or something. They do not need to be Apple.

      Personally I think Microsoft should just close down the Surface line. My company had 40 or so of the Surface 4's and more than half had the battery swelling issue. They were replaced with various options that were better in every way including price.

      We now have a single Surface in the company (pro 7), used by one of our corporate lawyers. That guy loves the Surface.

  14. vladimir

    Honestly, I would have been surprised if surface had a strong growth. The low-end devices (surface go) are more expensive and offer less functionality than a base iPad. The middle level past strong sellers (surface pro) are outdated with a design that is not appealing to anyone. Interesting and innovative products such as surface studio and surface duo are overly expensive, quickly abandoned, not updated etc. Surface laptop still has old internals, they are still using an old and terrible AMD cpu.

    Surface is not competitive in a generally declining market. Is it really that difficult to do better? Would anyone of us prefer a surface today over (often cheaper) products from HP, Lenovo or Dell?

    • SWCetacean

      In reply to Vladimir:

      It's mostly down to the Surface form factor. My wife is now looking for a new PC since her 2018 HP Spectre x360 is experiencing hardware issues. Her main candidate is now the Surface Pro 7+ since she likes the form factor. Even though other PCs from HP, Dell, and the like have more ports and are cheaper, she really likes the pen experience on the Surface (she tried using a pen on the Spectre, but there were issues with the screen and the form factor wasn't well-suited for pen use), and she just likes the design of the Pro.

      I kind of agree that the Surface Book and Laptop lines don't have enough that stands out from the other OEM devices. Frankly I don't understand why Microsoft needed to release the Laptop in the first place (I guess it's one of the few 3:2 laptops on the market, and IIRC the first 3:2 PC laptop). The Pro and Studio lines at least have the form factor going for them. Also, most of the OEMs seem to have given up on the Surface Pro form factor so the Pro has few competitors in that realm. The Book and Laptop, not so much.

  15. spiderman2

    but but nobody want windows and surface

  16. glenn8878

    The business case for Surface is non-existent. My company doesn't even buy it. The value for performance and hardware is on the expensive side. It's odd that with PCs selling more units than ever due to the pandemic, Surface couldn't cash in. No need for Microsoft Store since most people shop for necessities and many malls remain closed. I recalled a Microsoft Store opened approx 5 years ago and they sponsored a free Kelly Clarkson concert at the Los Cerritos Mall. Standing room only and I was about 10 feet from the stage. It was great. They gave away a lot of free stuff.

  17. GrizzlyStrong

    I don't know if Paul has the numbers on what type of PC's sold well last year, but my guess it was more of the low to mid-range laptops, a category that Microsoft does not offer, except for the Surface GO, even that you must buy a Type Cover which then puts the total cost of that device higher than some of the Inspiron, HP, Asus, or others can offer.

    I have two kids in elementary school, and when we needed laptops, we got some cheap HP's, they are not the best, but it was what we could afford.

    I think if Microsoft is serious about the PC, the only thing they can do is make a midrange set of laptops.

    But I don't think Surface should go away, It's a good brand. Perhaps with 10x they can produce a new set of devices that are affordable.

    • xamzara

      In reply to GrizzlyStrong:

      Apple results just in, Mac sales up 21%.

      No idea how similarly priced ($1000 and above) PCs have done lately, as PC ASP is quite low in general.

      There is probably not much money to be made in mid range laptops. I’d say the only sensible category for Surface is “premium”. No compromises, price accordingly.

  18. jwpear

    It's not hard to imagine Surface struggling to see significant growth. There seems to be a compromise of some sort on each device. I say that as a loyal Surface fan who has owned a Surface since the first Pro was introduced.

    I recently purchased a used Surface Laptop 3 and a Surface Book 3, both 13.5" models, so I could try both out and ultimately replace my 13.5" Surface Book 2 with one of them. I need a laptop with more RAM and storage.

    I'd love to go with a Surface Laptop, but I can't get 32 GB of RAM without going to the 15 inch model with the lackluster AMD CPU. I also have to settle for a 720p webcam and less than full day battery life. Why didn't Microsoft bump up the battery capacity on the 15 inch model?

    The Surface Book checks off many of the things I'm looking for--ability to get 32 GB RAM in a 13 inch model, great 1080p webcam, all day battery life, and I do still enjoy using the tablet detached from time to time. But it isn't serviceable. Why is the most premium of premium Surface devices left in this glued together, non-serviceable state while the lower devices now enjoy such? And of course, its bulkier and heavier than SL. Finally, a problem that might just be related to the used SB3 I purchased, but the keyboard doesn't feel as good as the Surface Laptop 3 or the Surface Book 2 I intend to replace. It seems to have more friction and a cheap click sound. Unfortunately, I have no MS store nearby and Best Buy doesn't put the higher end Surface Books out on display. I can't test another SB3 to see if the keyboard is truly odd on the one I have or all of them. Surely Microsoft didn't cut corners on the SB3 keyboard.

    If the Surface brand is supposed to represent the top of the line, premium hardware, why do we have to compromise on those things, especially at their price points? I don't understand Microsoft's intent. They're no longer aspirational devices.

  19. Mark from CO

    Perhaps what we see in terms of Surface sales is what we should expect. Paul has described the position Microsoft is in. The company really can't go full bore, as it risks alienating its OEMs (risk is to push them further to Google and Chromebooks), but it still wants to push its OEMs in terms of design. So if true, we should see and aggressive Microsoft when it is pushing new designs/categories (Windows 10X), and shouldn't be too surprised when its designs begin to age when its OEMs are providing innovative products in the marketplace (as could be argued is the case now).

  20. b6gd

    All this just proves that the future of Microsoft is cloud subscriptions. Nothing wrong with that, but that is what their future is.

    Surface will go away IMHO. Xbox division will stay because gaming is big $$$$ and the goal of Xbox is to drive Game Pass subscriptions, monthly recurring revenue.

    • solomonrex

      In reply to b6gd:

      Agreed. Left unsaid by Paul is that there were two major entry level surface models released in the last two years - the go devices - and their sales hardly budged. Not a good sign.

      And they closed their stores. And they had a major Arm-based Surface release. Their lineup needs updating, badly. Possibly the stores were more important to consumers and sales than they anticipated. After all, they work for Apple. At least retail will be cheap if they pivot again.

      • yaddamaster

        In reply to solomonrex:
        From a business case I'm not aware of many companies that are committed to the surface line.
        From a consumer case - the closure of the stores was a huge colossal blunder, imho.
        My Surface Pro 5 has been rock solid (outside of a small glitch that was rectified by taking it to my local store and exchanging it with a brand new one). Although the keyboard was disappointing and the extended warranty doesn't cover the keyboard even though it was bought as a bundle.
        My son's new 7 has been a massive disappointment of driver incompatibilities.
        Simply put - the advantage of having a local store outweighed the general incompetence of MS' online and telephone support. Not having a store was a huge mistake. Having to mail everything in for service......yeah, no.
        I prefer Windows to Mac but I'm tempted to make my next purchase a Macbook.

  21. Alex Taylor

    I'm almost a Surface fan, and my Pro 3 is due for replacement as the battery life is sad. My wife also had a Pro 3,and we share a dock with dual monitors, which the Surface Connect is great for.

    The Pro 7 just seems like a bad option (as i clearly like to get a few years service), with design and processors at the end of cycle.

    A refreshed design is overdue, and the lack of it made me put off an upgrade last year.

    That's very specific to me, but not keeping the range fresh can't be a big help.

    • ikjadoon

      In reply to agt4:

      I do think Surface would improve greatly if it had consistent yearly refreshes, especially on the PC hardware side (accessories, sure, whenever). This sort of "random drops who knows when" isn't exactly creating loyalty.

      If I wanted loot drops, I'd play some free to play game. Make it consistent.

  22. saint4eva

    Windows and Surface Devices did incredibly well. Well done, Microsoft.