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Microsoft's Surface to be under revenue microscope

Gregg Keizer | Oct. 1, 2013
New financial reporting format will disclose tablet line's quarterly revenue.

Analysts tried to estimate the number of Surface tablets shipped or sold based on the $852 million in revenue, but had limited success. That job will not be any easier next month when Microsoft issues the next earnings statement and Surface KPI. During part of the quarter — the period from June 1 to Sept. 30 — Microsoft slashed the price of the Surface RT up to 30% and cut the price of the Surface Pro as much as 11%.

The new Surface 2 and Surface Pro 2 tablets, which will start at $449 and $899, respectively, will not be included in the third calendar quarter's results, but will appear in the fourth quarter's, which Microsoft will report in the second half of January 2014.

Microsoft also confirmed that a small amount of Surface-related revenue will be recorded under the "Licensing" section of the Devices and Consumer division, rather than under "Hardware." That revenue, said Microsoft, was for a portion of the Windows license assigned to the Surface tablet.

Most of the value of the Windows license is included with the Surface tablet revenue under Hardware, but a bit — Brod said the "cost basis" of the license — would be booked under Licensing.

Keith Weiss, an analyst with Morgan Stanley, first posed the question that prompted Brod's answer, but Weiss was trying to get Microsoft to explain how it will account for Windows Phone license revenue on the smartphones it sells after the company wraps up the Nokia acquisition early next year.

Brod declined to outline how Windows Phone licenses would be recorded after the absorption of Nokia, but his answer about split revenue for the Surface hinted at the same for smartphones in 2014.


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