In the chart above, I’ve projected what the Surface revenue number might look like if the company rebounds to a loss of only 24%, repeating this year’s performance. Basically, they’re back to what the business was in 2016 and 2017, which is… not good?
At Microsoft, a division needs to be able to bring in $10 billion of revenue per year to be considered a “needle mover”. Surface once looked like it was on its way to building that kind of steady, growing business. It doesn’t anymore.
Maybe this explains the sudden departure of Windows & Devices boss Panos Panay, just days ahead of the company’s fall Surface showcase event. His portfolio had expanded dramatically in recent years to cover not just Surface devices but also Windows 11. A report in Business Insider, quoting “anonymous insiders”, says Panay was
Ed Bottunhappy with recent changes in the Windows + Devices division, includingsignificant cuts to simplify the Surface business ... and focus more on Microsoft’s hits rather than the more experimental devices the company funded in flush times.
I’m going to play the contrarian here and say that, first of all, a collapse of the Surface business doesn’t make a noticeable dent in Microsoft’s financial results, secondly the entire PC market, including Apple, recorded lower sales than expected after people rushed to upgrade their devices during the pandemic, and finally higher interest rates drove companies to reduce headcounts, cut costs wherever possible, and slash extraneous projects – all external factors that marked the entire tech sector over the course of 2023. On top of that Surface devices are more premium than the average PC, so naturally their sales are more impacted by lower demand and lower disposable incomes caused by inflation.