On the Call: CFO Hood says Microsoft ‘learned a lot’ as it tries to make Surface profitable

LOS ANGELES, Calif. – The good news: Microsoft’s push into hardware showed some promise in the December quarter, as revenue from its Surface line of tablets more than doubled to $893 million from the previous quarter.

The bad news: it’s still losing money.

Following the company’s release of second-quarter earnings, an analyst asked Chief Financial Officer Amy Hood how big the Surface unit has to get before it becomes profitable. Regulatory filings show that Surface is cost the company $932 million for the quarter, about $39 million more than it brought in in revenue.

QUESTION: The Surface (is) still losing money even at the $900 million run rate of revenue in the quarter. Can you give us what type of volume you need to have of that business to make some money?

RESPONSE: (Hood) When we launched Surface just a year ago our goal was really to create a product that showcased what can happen when you innovate in hardware, in the service and in the software. And as you know we’ve learned a lot over the course of this journey and we have to make more meaningful progress. But I think for us, we’ve remained focused as we launched the second version of Surface, to stay focused on those price points and gross margin. And I think we’ve made a leap from v. 1 to v. 2 and I look forward to making leaps as we go forward in our product roadmap. But I do think it’s more to think about it as a goal — as we absolutely have — as we continue to innovate the line.