Stock Review: What can Microsoft (NASDAQ MSFT) Expect From Surface Pro

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It has never been clear as to what the American multinational – Microsoft (NASDAQ MSFT) will next be doing with its tablet line. It currently uses a bilateral platform approach by putting Windows RT in the picture for its ARM based devices, being the only seller of Windows RT devices at the moment. It has been known for a while that the company has been trying to make its way into the small tablet market with its Surface Mini. However Microsoft (NASDAQ MSFT) cancelled this plan at the very last minute.

However, the company is becoming more profitable with its current tablet line. Satya Nadella, CEO of Microsoft (NASDAQ MSFT), pointed out in the company’s earnings report last week that the company has seen improvement in business earnings of its Surface lineup. He continued to say that the gross margin of the Surface was positive in this quarter which was quite notable since the last few quarters weren’t as healthy.

The revenue of Microsoft’s (NASDAQ MSFT) Surface soared at 127% amounting to $908 million in its last quarter. This was due to the release of the Surface Pro 3. This new device is being positioned by Microsoft (NASDAQ MSFT)) as a replacement for laptops.

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Microsoft (NASDAQ MSFT) stated in its 10-Q that the cost of revenue for Surface increased by $157 million thus reaching $840 million. This goes to show that the gross profit must be about $68 million. Nadella reported that the units for Microsoft (NASDAQ MSFT) Surface Pro 3 are going at twice the speed of the Surface Pro 2.

Microsoft (NASDAQ MSFT) isn’t one to make the operating expenses of the Surface public. However, it is easy to guess about the numbers being negative even though official figures aren’t given. It’s very possible that the Surface is negative since its operating expenses may have already used up the $68 million of profit that it has just started making.

Microsoft’s (NASDAQ MSFT) next step will be to make the operating income of its device positive. Even though the device isn’t only about increasing revenue, it stood at 4% of its consolidated revenue. The tablet market isn’t doing really well with market leader, tech giant Apple (NASDAQ AAPL), also witnessing a decline in its iPad sales as the growth moves towards emerging markets.

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Surface may not have the brand appeal of the iPad, yet it has been launched in 28 different markets with its business flourishing. Microsoft’s (NASDAQ MSFT) Surface Pro is in the market to stay. Its growth has shown that the company is benefiting from this product line. Its versatility gives it the edge over other rival tablets present in the market with its light weight and diverse features.

This new device will be highly important for Microsoft (NASDAQ MSFT) in the long run where it will set the stage for Microsoft’s (NASDAQ MSFT) Windows 10 because the company’s new operating system is about bridging the gap between the laptop and tablet devices.

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