After struggling with a muddled marketing campaign when Microsoft first launched its Surface tablet, the company has since simplified its message — and is making some money as a result.
Microsoft reported record sales of Surface tablets, driven primarily by the higher-priced Surface Pro 3, with the company seeing revenue rise 24% to surpass $1.1 billion for the first time from the line of tablets during its fiscal second quarter, which ended Dec. 31. Surface sales generated $908 million during the first quarter.
Surface Pro 3 sales are outpacing Surface Pro 2 threefold at this point, Microsoft said, backed by an ad campaign that touts the device’s ability to replace a laptop.
The results are a far cry from 2013 when Microsoft took a $900 million charge due to unsold Surface RT units — the precursor to the updated Surface Pro 3.
Surface is part of Microsoft’s Devices and Consumer group, which saw revenue rise 8% to $2.4 billion during the quarter. Group also includes the Xbox video game console, which moved 6.6 million Xbox 360 and Xbox One units during the period.
That’s down 20% from 7.4 million Xbox units sold during the same quarter in 2013, but the sales of the $349 device still made Xbox the most popular video game console during the holidays in the U.S. Sony said it sold 4.1 million PlayStation 4s in December.
Xbox exclusives like the “Halo: Master Chief Collection” and “Forza Motorsport 5” were strong sellers for the company. “Minecraft” sales will be accounted for this quarter.
The company saw a 13% decline in Windows licensing revenue as Windows XP winds down. Microsoft will launch Windows 10 as a new operating system later this year, packed with updates it believes will make its various devices more popular with consumers.
Microsoft’s cloud computing and server, Bing search, Office 365, Dynamics CRM and Azure businesses helped lift up revenue by 8% to $26.6 billion. Net income, however, fell 10% to $5.6 billion, impacted by $243 million in restructuring charges due to the integration of Nokia.
Microsoft also is starting to see success in focusing on affordable smartphones through Nokia, selling 10.5 million Lumia devices during the quarter, another record for the company. That’s up 28% from 8.2 million units sold during the year-ago period. The phone business generated $2.3 billion in revenue during the quarter.
The company launched its first wearable device, the Microsoft Band, in October, and plans to launch the Surface Hub for businesses, and the HoloLens for consumers later this year, as new devices Microsoft hopes will get versions of Windows into more hands. mobile, tablet and PC efforts.
The company now has 9.2 million subscribers of Office 365, up from 3.5 milion.
“Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership,” said Satya Nadella, chief executive officer of Microsoft. “We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers.”