Was Microsoft’s surface revenue disappointing during the 2020 pandemic? Do not overthink it.

Microsoft reported for the first time that Surface revenue exceeded $ 2 billion last quarter. We always see a big increase in the Q2 results as it follows the US holiday pressure where discounts are regularly offered to increase the volume. Compared to last year, Microsoft has risen by 3 percent, which is in line with the growth of Surface over the past few years.

That’s a good number, $ 2 billion, though it pales in comparison to Dell (~ $ 11 billion), HP (~ $ 10.5 billion) and Lenovo (~ $ 14 billion), which have much larger production, distributions and Microsoft product lines.

But should we have expected an even greater number from Microsoft as a result of the ongoing pandemic and pressure to change the market from Work from Home (WF) and Study from Home (SFH)?

Not really. Here’s why.

It’s not the same

Do not compare income to PC shipments

I’ve seen people throw the IDC’s “13 percent” for year-over-year shipments (302 million) on computers as a reference point, indicating that Microsoft’s increase seems to be 3 percent low. This comparison is strange for a few reasons.

First, Microsoft reports income, not deliveries, which IDC estimates. Revenue may vary depending on the product’s price point and volume mix. Microsoft could have sold fewer but more expensive Surfaces (like Surface Studio 2) or much cheaper (Surface Go 2). We do not know, because Microsoft never breaks the figures to the public.

Second, IDC’s numbers are not suitable for this review anyway, because they contain Google Chromebooks. Chromebooks do Compete against Windows PCs, but this is a separate argument if you challenge Surface PC sales compared to the rest of the Windows PC segment.

Go by the numbers of competitor Gartner, which does not Chromebooks count, it is estimated that 275 million computers will be shipped in 2020, an increase of 4.8 percent year-over-year.

It’s a little more sobering.

Of course, I just found that it is a no-brainer to compare an estimate of annual computer shipments with quarterly revenue.

However, the pick-up is very important: sales of Windows PCs increased in 2020, but it is not a massive revival (and Chromebooks also played a big role). It is a bump in a market that has been declining or declining for years. One of the reasons computer sales were above average in 2019 and 2020 had nothing to do with the pandemic, but rather End of Support for Windows 7, where businesses picked up new hardware.

This is a bump and not a tsunami

The pandemic rush is about low cost appliances, not superior

I do not think I have ever written a single review of a Microsoft Surface product, where people do not complain that the price is too high. It’s an ongoing joke here at Windows Central that when Surface Pro 12 and Surface Laptop 6 appear, we can already expect reader comments complaining that it’s too expensive.

The fact is, Surface is premium, and like Apple devices, it often runs higher than what some people consider a good value. Microsoft has become more aggressive in pricing over the past few years (moving away from Windows 10 Pro to Home and shaving off $ 100 across the board), but Surfaces are still more expensive than comparable devices from the big three: HP, Dell and Lenovo.

It’s a well thing. If Microsoft suddenly sucks HP, Dell, Lenovo, not to mention Acer, ASUS, Razer, MSI and others, I’m sure its “partners” would not be happy about it. Microsoft is already drawing a fine line between trying to set the bar and angering hardware colleagues.

I bring this all to the fore because the product mix most sold during this pandemic was lower-cost appliances. It was students who suddenly had to study from home, who needed dedicated school computers. Schools used to share laptops among students, but now they have to be one-on-one. And guess what – they did not buy Surface Book 3s, but rather affordable options from HP, Dell and Lenovo, which specialize in offering different products and on-site support.

The research firm Gartner reported on this trend in January:

Computers have re-emerged as an essential tool as consumers, including younger children, rely on them for work, school, socializing and entertainment from their homes.

Lenovo, for example, sells the IdeaPad 1 and Windows 10 Home in S mode for $ 200. HP has just announced its ProBook x360 11 G7. Dell has the $ 539 Latitude 3190 2-in-1. And we just saw updated EDU laptops a few days ago that were announced starting at $ 185.

In addition, HP’s consumer line (Pavilion, Envy) and Dell (Inspiron) also fill the gaps for non-educational devices.

If we look at 2020, Microsoft has refreshed Surface Go 2, Surface Laptop Go, Surface Book 3, Surface Duo and Surface Pro X (SQ2). Of these, Surface Go 2 and Surface Laptop Go are the only ones that are remotely budget-friendly for schools or homes that need an extra computer. Microsoft probably sold more Surface Laptop Go computers than Surface Laptop 3s, but the profit margins are much slimmer than something like Surface Studio 2: selling more, making less.

That does not mean that it was everyone low cost devices sold in 2020. Gaming computers for the home also rose because of the entertainment value needed while trapped in a pseudo-quarantine. Surface does not compete here, but it does Microsoft do with Xbox, what done see huge profits coupled with the hugely successful launch of Xbox Series S and Xbox Series X.

It’s money in the bank

Surface rev is OK, Windows 10 Home rev is far from over

Finally, although the Surface line probably did not benefit from what the market demanded in 2020 (exceptions for Laptop Go and Go 2), Microsoft still wins.

Revenue from sales of Windows 10 Home licenses increased by 24%. And who bought those Windows 10 Home licenses? The same OEMs that make lower-cost laptops for education and consumer markets: Dell, HP, Lenovo and Acer.

In the end, it’s all money in the bank to Microsoft, no matter if it’s going to Surface or Windows. The only major takeaway in terms of Surface revenue is that consistent and growth year over year. All the others are just a distraction.