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Microsoft's Surface has gone from a proof of concept into the spearhead of Microsoft's hardware business

Microsoft announced its quarterly results final night, and the figures were generally good, with acquirement of $23.6 billion (up 6%), increased operating income, and college earnings per share. The one ugly spot was More than Personal Computing — the business segment that includes Windows x, Bing, Surface devices, Windows Phone, and the Xbox business.

Here's how Microsoft's CFO, Amy Hood, described the situation:

[R]evenue was $8.8 billion, failing 7 percentage, as Phone and Surface results starting time salubrious growth in Windows, search, and gaming. Our OEM business grew 5% this quarter. OEM Pro revenue grew 10%, ahead of the commercial PC market, mainly due to a higher mix of premium SKUs…

Devices revenue declined 51 percent. We had no cloth Phone revenue this quarter. Our Surface concern declined 26 per centum and 25 percent in constant currency, as heightened price competition and production end-of-lifecycle dynamics resulted in lower than expected Surface Pro unit volumes…

[W]east expect revenue to refuse with negligible acquirement from Phone. With Surface, we expect a more moderate rate of decline given the prior-year comparable and current market dynamics.

Nothing in those paragraphs is great for Microsoft's hardware business. The device revenue fall-off presumably includes Xbox One sales, though these may non have slumped as far as other product categories. Elsewhere in the call, Hood refers to the gaming business growing by four percent every bit Xbox Alive growth offset a decline in Xbox 1 sales. Xbox Live monthly active users also grew by thirteen percent measured beyond Windows 10, Xbox Live, and mobile platforms. Microsoft doesn't disclose whether its active user count includes users who accept Xbox Live and Windows x installed on multiple systems as a unmarried user.

Xbox App

PC / Xbox streaming is a major characteristic MS is pushing these days.

But the potentially seasonal reject in Xbox One sales is dwarfed by falling Surface and Windows 10 Mobile revenue. "We had no material Phone revenue this quarter" is execu-speak for "Windows 10 Mobile is dead."

Investors don't seem to care much, given that none of them asked questions nigh the mobile, gaming, or hardware markets. But this isn't good news for anyone who actually liked Microsoft's Surface line-up or wants to use Windows 10 Mobile. Offset, it'due south increasingly difficult to see why Microsoft is fifty-fifty bothering with updating the operating arrangement. Information technology has no alleged hardware platform and no partners aggressively trying to drive it into the smartphone or tablet market. Enthusiasts like to talk virtually the much-rumored Surface Telephone every bit if it were a market reality, just Google Trends confirms we've been hearing these rumors for a long time.

SurfacePhone

That initial fasten happened the solar day Ballmer announced the Surface product family. Interest in such a device has bubbled along e'er since, just Microsoft has said nothing about any such product. Manifestly I'm not omniscient, but it seems exceptionally unlikely that the company will try to revive its failing platform with a custom-congenital niche product like the mainstream Surface lineup.

As for the Surface revenue declines, Microsoft is showing troubling signs of writing off these businesses as well. When Surface launched, Microsoft fabricated it clear these cutting-edge tablets were designed to showcase the best the PC manufacture had to offer. Forth with ultrabooks, Microsoft wanted to give OEMs an case of what tablets could exist and practice. In a lot of ways, the visitor succeeded. I've never been happy about some of the persistent issues that accept dogged Microsoft'due south hardware business organisation, like the mode Surface Pro iii owners with dodgy batteries were bait-and-switched (MS did eventually brand good on this result), but Surface has definitely done a good task of demonstrating a no-compromise feel. Devices like the Surface Book and Surface Studio have fifty-fifty arguably moved the ball forward, even if they remain niche products with extremely high price points.

But looming over those accomplishments is the simple fact that these hardware designs are rather dated. The Surface Pro 4 is xviii months old, and the Surface Book only received a minor GPU bump in its latest iteration. They collectively lack USB-C, Thunderbolt 3, modern Nvidia GPUs, and Intel'south seventh generation Kaby Lake processors. If Microsoft wants us to view Surface as a genuine business organisation, equally opposed to a hobby or a ane-time projection, it needs to spend some fourth dimension talking most its plans for this segment. And if I'm incorrect and some mythical Surface Phone is being forged deep in the skunkworks of Redmond, information technology's time to showtime talking nearly it. Right at present, there are way too many shades of Nokia in this situation for it to feel comfy.

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