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Microsoft Makes Bank, Even Without Surface Success

Microsoft’s recent Q1 2024 earnings report reflects the company’s ongoing ascent, predominantly driven by its cloud services. Microsoft’s earnings have surged to $56.5 billion, marking a 13 percent increase from the previous year. Profits have reached an impressive $22.3 billion, representing a substantial 27 percent growth. Virtually every facet of Microsoft’s business is thriving, with one notable exception – its devices division, which has declined by 22 percent compared to the prior year.

This segment, encompassing Surface hardware, HoloLens, and accessories, has experienced a downward trajectory over the last two years. Revenues dwindled from $7.2 billion in 2020 to $6.5 billion in 2021 and further down to $5.4 billion in 2022. Unfortunately, there are no apparent signs of this decline abating, although it’s worth noting that the decrease in earnings from devices was less severe than the company had estimated last quarter.

Leading up to Microsoft’s most recent device event in New York City, it was evident that the Surface line was encountering challenges. The introduction of the Surface Laptop Studio 2 and Surface Laptop Go 3, while welcome improvements, may not be transformational enough to attract a substantial number of new Surface users.

It’s becoming increasingly evident that Microsoft’s era of dominance in the device market may be waning. Notably, Panos Panay, the charismatic leader responsible for these devices, has departed for Amazon. The iconic Surface tablet line has remained untouched this year. Given Microsoft’s remarkable success in the cloud sector and its investments in AI, the question arises: Is it worthwhile for the company to continue competing in the PC market?

With Apple’s successful pivot toward its efficient yet potent Arm chips and the agility of other PC manufacturers in swiftly embracing new CPUs and GPUs, there appears to be limited room left for Microsoft in this competitive landscape.

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