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Surface failure doesn’t stop Microsoft from making money

Microsoft’s Q1 2024 earnings report reaffirms the company’s impressive growth, largely attributed to its success in the cloud sector. Microsoft’s earnings surged to $56.5 billion, marking a 13 percent increase from the previous year. Profits also saw a remarkable rise, reaching $22.3 billion, up by 27 percent. Virtually every facet of Microsoft’s business is thriving, with one notable exception – its devices division, which experienced a 22 percent decline compared to the previous year.

This segment, encompassing Surface hardware, HoloLens, and accessories, has been facing a decline over the past two years. It saw a drop from $7.2 billion in revenue in 2020 to $6.5 billion in 2021 and $5.4 billion in 2022. Unfortunately, there are no indications that this downward trend is about to reverse, although the decrease in earnings from devices was less severe than the approximately 30 percent decline estimated in the last quarter.

Before Microsoft’s recent device event in New York City, it was evident that the company’s Surface PCs were struggling. The launch of the Surface Laptop Studio 2 and Surface Laptop Go 3, while welcome, is unlikely to substantially alter the situation. While these devices offer commendable improvements, they may not be revolutionary enough to attract a significant number of new Surface users.

It’s increasingly apparent that Microsoft may be reevaluating its commitment to the Surface line. Panos Panay, the charismatic figurehead for these devices, has transitioned to Amazon. Notably, the iconic Surface tablet line has seen no updates throughout the current year. Given Microsoft’s exceptional success in the cloud business and its ventures into artificial intelligence, the question arises – is it worthwhile for Microsoft to continue competing in the PC market?

With Apple’s effective shift to its efficient yet powerful Arm chips and more agile PC manufacturers capable of promptly adopting new CPUs and GPUs, the competitive landscape in the PC market leaves limited room for Microsoft to thrive.

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