Microsoft's Surface to Be Under Revenue Microscope
Microsoft plans to make it easier for Wall Street and industry analysts to track revenue generated by the company's struggling Surface line of tablets.
Mon, September 30, 2013
Computerworld — Microsoft will make it easier for Wall Street and industry analysts to track revenue generated by the company's struggling Surface line of tablets, the company promised Thursday.
In a conference call with analysts last week, Microsoft spelled out the new format it will use next month to report its quarterly financials.
The new format, required because of the major corporate restructuring the company announced in July, will provide "more transparency, greater accountability and better execution," pledged Frank Brod, Microsoft's chief accounting officer.
As part of that transparency, Microsoft said it will provide analysts with "key performance indicators," or KPIs, for a wide range of metrics. The KPIs are meant to supplement the numbers issued in the earnings press release and the "management discussion and analysis," abbreviated as MDNA, included in the filing with the U.S. Securities and Exchange Commissions (SEC).
Among the KPIs that Microsoft's promised to provide will be the quarterly revenue from sales of the Surface and the accessories that accompany the tablets, such as the keyboard covers and the upcoming docking station.
"Starting in Q1 we will report quarterly the revenue derived from our Surface products and related accessories," said Chris Suh, manager of Microsoft's investor relations, in the call last week.
Microsoft's first quarter for its 2014 fiscal year ends Sept. 30, and is equivalent to the calendar's third quarter. The company will release the quarter's numbers on Oct. 24.
Microsoft first disclosed Surface revenue in July when it reported second calendar quarter earnings, its fourth quarter for fiscal 2013. At the time, it said the Surface line-up had generated $853 million in revenue during the stretch from the October 2012 launch of the Surface RT to June 30, 2013. The amount was notable in part because it was less than the $900 million write-off Microsoft took to account for aggressive Surface RT discounts as well as excess inventory.
However, Microsoft has never revealed the number of Surface tablets it has sold, and is unlikely to do so going forward, according to Suh's comment that the KPI will deliver "revenue derived from our Surface products."
Microsoft's new Hardware group's gross margin plunged by 62% in 2013 compared to the year before, in part because of a $900 million charge for discounted and unsold Surface RT tablets. (Image: Microsoft.)
By comparison, Apple regularly reports not only iPad revenue but also the units sold during a quarter. The two numbers let analysts track such things as the ASP, or "average selling price" of the iPad. Apple's tablet ASP dropped to $436 in the second quarter, a year-over-year decline of 19%, which experts interpreted as an increase in sales of the lower-priced iPad Mini tablets as a percentage of all iPad sales.