Microsoft Earnings Call Insights: Surface Profitability and Reducing Price Points

Microsoft Corporation (NASDAQ:MSFT) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Surface Profitability

Phil Winslow – Credit Suisse: Just wanted to spend a moment on Surface, obviously you talked about ramping up production and distribution of that. What are some of your goals as you look at Surface RT and Pro for this year and within that context, how should be think about the profitability of the Surfaces?

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Peter Klein – CFO: Thanks Phil as we said we think of Surface as one part of the overall Windows 8 story. Certainly this quarter, it was a contributing factor for the revenue growth in the Windows business. What it does is it sort of highlights some interesting innovation that can happen to sort of demonstrate the power of Windows 8 when tightly integrated with hardware and software and some new categories of devices. We obviously had some limited distribution this quarter in our stores, and as you know, we’re excited about expanding that.

So, you know, our goal is to continue to build that business to highlight the incredible power of Windows 8 in an interesting set of devices. We’re going to expand geographically. We’re going to expand the product line up. We’re going to expand retail distribution and capacity. So we look forward to sort of continuing the growth of that business.

Reducing Price Points

Walter Pritchard – Citigroup: Just wondering Peter if you could talk about, obviously, one of the differences here between your devices and the market and some of the competing devices, I think is price point of touch machines, Windows devices are much higher and I am wondering if you could just talk about what you’ve learnt here in the first three or four months of the Windows launch, how important price is to the customer rates in terms of driving units and what do you think the outlook is in terms of getting price points down on the devices in aggregate in order to potentially drive some demand?

Peter Klein – CFO: Thanks Walter. Yeah, we learned a lot this quarter. We learned a lot about the types of experiences and significance and to some extent the price points customers are looking forward from their devices. We saw some really great demand for some of the touch devices that we’ve brought to market. In some cases we didn’t have the supply that we needed to satisfy that demand. I think from a price point we learned, I think what we’ve always expected, which is this segmentation and differentiation.

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There’s – one of the powers of the Windows ecosystem obviously is a variety of devices and form factors and experiences at a variety of price points and I think we learnt that that continues to be important. As I said, we’re working very, very closely with both our chip partners as well as the OEMs to bring the right mix of devices which means to your point the right set of touch devices at the right price points depending on the unique needs of the individual. I think we learned a lot about that and one of the things you will see is a greater variety of devices and a bigger variety of price points that kind of meet the differentiated needs of our consumers.

A Closer Look: Microsoft Corporation Earnings Cheat Sheet>>