Weak Surface sales hit Microsoft hard in Q4 2013 earnings

Microsoft has just reported its Q4 2103 results and it looks like weak sales of its Surface tablet hit it seriously hard.

The Redmond-based tech giant reported quarterly revenue of US$19.90-billion, of which US$4.97-billion was net income. The headline figure however is the US$900-million hit it took on its Surface tablets.

The tablet was meant to be an iPad rival and came with a massive marketing campaign. It also ordered somewhere between three and five-million of the devices from its Asian suppliers prior to arriving on market.

That many units for an unproven device that was getting mixed reviews in the tech press? There’s confidence and there’s pure unadulterated cockiness.

Even when it was clear that the device wasn’t going to be runaway hit, Microsoft CEO Steve Ballmer still insisted that it was a “real business”.

Unsurprisingly there was little mention of the ill-fated tablet in the quotes from the company’s execs in the result announcement, focussing instead on how well its enterprise division was doing.

“While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE,” said Amy Hood, chief financial officer at Microsoft. “While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

“We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs,” said Ballmer. “Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most.”

Then again, enterprise did show some solid growth over the quarter. Microsoft Business Division revenue grew 14% for the fourth quarter and 3% for the full year.

Server & Tools revenue grew nine percent for the fourth quarter and 9% for the full year, driven by double-digit percentage revenue growth in SQL Server and System Center.

Its Online Services Division revenue meanwhile grew nine percent for the fourth quarter and 12% for the full year, driven by an increase in revenue per search and volume.

The company’s decision to get into gaming more than a decade ago, also continues to bear dividends.

Microsoft’s Entertainment and Devices Division grew eight percent for the fourth quarter and six percent for the full year. During the quarter, transactional revenue within Xbox LIVE grew nearly 20%, and we unveiled our next-generation gaming and entertainment console, Xbox One.