Microsoft Shows Big Azure Cloud Gains As Surface Hardware Revenues Decline In Need Of A Refresh

Microsoft Sign

The numbers are in and they show that Microsoft needs to seriously consider refreshing its Surface line, and especially its Surface Pro tablets. Revenue from Microsoft's Surface products declined 26 percent year-over-year during its most recent quarter ended March 31, 2017. The only other segment to post a lost was Microsoft' Enterprise Services, which dropped 1 percent.

This is where it gets tough competing in hardware, as Microsoft is finding out. Microsoft now has a somewhat fleshed out lineup of Surface products, including its relatively new Surface Book laptop and Surface Studio all-in-one PC. However, both of those product SKUs are on the higher end of the pricing spectrum and are intended for professionals who can justify dropping a couple grand (or more) on a system.

Microsoft Surface Pro 4

Microsoft's Surface Pro 4 tablets are much more affordable. They start at $799 (on sale for $749 currently) with a middle ground of $1,199, which includes a Core i5 processor paired with 8GB of RAM and 256GB of solid state storage. The Surface Pro 4 is a mainstream product, and also Microsoft's bread and butter in the hardware sector. But with a 26 percent decline in revenue, consumers are finding Microsoft's bread and butter to be stale.

This does not mean that Microsoft is in bad shape. Overall, the company raked in $22.1 billion in revenue to the tune of a $4.8 billion profit for its most recent quarter. And while Surface revenue was down, Microsoft's Azure cloud business grew a staggering 93 percent. That helped bump its Intelligent Cloud revenue up 11 percent to $6.8 billion.

Microsoft also saw gains in its Productivity and Businesses Processes division. On the strength of its Office products and LinkedIn acquisition, revenue climbed 22 percent to $8 billion.

"Our results this quarter reflect the trust customers are placing in the Microsoft Cloud," said Satya Nadella, chief executive officer at Microsoft. "From large multi-nationals to small and medium businesses to non-profits all over the world, organizations are using Microsoft’s cloud platforms to power their digital transformation."

The knee-jerk reaction to Microsoft's earnings report was pessimistic with shares of the company's stock dipping 3 percent in after hours trading. However, it has recovered since today's opening bell.