April 27 (Reuters) - Microsoft Corp's lineup of
Surface tablets, laptops and desktop computers has always been a
The software company's surprise foray into hardware became a
billion-dollar-plus business and even managed to outclass
longtime rival Apple Inc with its Surface Studio
desktop machine last fall, according to some tech critics.
At the same time, the Surface range competes with
Microsoft's longstanding PC maker partners, such as Dell
Technologies, Lenovo Group Ltd and HP Inc,
which pay billions of dollars to license Windows, Microsoft's
traditional cash cow.
Those two facets came into sharp relief in the latest
quarter, when Surface sales suffered while Microsoft's own
Windows licensing customers prospered.
Surface revenue declined 26 percent to $831 million, its
lowest tally in a year. Meanwhile, the overall PC industry
staged a slight comeback, notching a 0.6 percent gain in
shipments for the first time in years, according to IDC. That
helped drive Microsoft's Windows licensing revenue up 5 percent
Effectively, Microsoft lost in Surface sales, but it gained
in Windows licensing.
It has always been part of Microsoft's Surface strategy to
release flagship models that goad the rest of the PC industry to
improve its products, said Microsoft investor relations director
He said competition from PC makers selling lower-priced
hardware, along with some Surface hardware nearing time for an
upgrade, led to the lower Surface sales.
"It's definitely about driving the health and performance of
the broader windows ecosystem," Moxcey said.
Buried in the supplemental information Microsoft provides
investors, there was further silver lining. The company said
sales of Windows licenses destined for consumer PCs was down 1
percent, but revenue for more lucrative Windows licenses for
business and educational computers was up 10 percent.
Moxcey said this was attributable to sales of higher-priced
machines, especially for businesses. "That carries a higher
revenue-per-license for us," he said.
The data fits with Dell's latest results, as the PC maker's
sales of computers to businesses rose 11.6 percent year over
year to $6.6 billion in its last quarter, versus 8.5 percent
growth for consumer PCs.
Rebounding sales of Windows PCs to schools and businesses is
a boon for Microsoft, which is staking its comeback on business
and productivity software.
And higher Windows revenue per license means that the
Surface strategy - to pull the PC industry back upmarket with
expensive flagship machines after a years-long race to the
bottom on prices - might be getting some traction.
(Reporting by Stephen Nellis; Editing by Bill Rigby)