Microsoft's Surface turns first profit in 2 years


"There's a long way to go to get to the kind of gross margins that would lead to true profitability once marketing and other costs are factored in," Dawson said.

Ben Thompson, the independent analyst behind, agreed in his subscription-only Daily Update of Friday. "What is all but certain, though, is that this segment, once you include advertising and channel, was still quite unprofitable, and likely unprofitable by a lot," Thompson wrote of Microsoft's Computing and Gaming Hardware division, which generates the bulk of it revenue from Surface and Xbox sales.

Microsoft's advertising campaign for the Surface has been substantial, with widespread television spots, and its marketing spending has also been brisk, including a reported $400 million deal with the National Football League (NFL) that put Surface tablets on the sidelines.

Microsoft called out the Surface Pro 3, which went on sale in June -- making the September quarter the first complete quarter that booked Surface Pro 3 revenue -- in its earnings call with Wall Street for sparking the surge.

"Unit sales are pacing at twice the rate of what we saw with [Surface] Pro 2," said CFO Amy Hood, referring to the now-discontinued model launched in the fall of 2013.

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