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Is Microsoft's Surface Business Becoming Desperate?

|Includes:Microsoft Corporation (MSFT)

On Sunday, Microsoft cut prices on all three of its Surface 2 models in the United States by $100. While the price slash isn't permanent (lasting only until Sept. 27), it makes one wonder if it's a back-to-school promotion, a sign of a new model to come, or a desperate move to sell more tablets.

In our opinion, it's the third option.

Microsoft has lost an estimated $1.7 billion on the Surface business since its debut in 2012. That's $1.049 million for FY2013 and another $680 million for FY2014. In the June 2014 quarter alone, the Surface lost $363 million, the business's largest quarterly loss since it began. Of course, a lot of that loss came from write-offs from the Surface Mini, which never made it to the shelves due to fears that it wouldn't sell well. But it doesn't change the fact that Satya Nadella needs to address the money pit it's become.

Because if the Surface isn't growing sales or creating a market (which it is not doing despite what Microsoft has said), and it's losing money, what's the point of it all? Is it just an attempt to do everything they can to realize Steve Ballmer's vision? Or does management really see a future in it?

The other rumor that has been floating around, that Microsoft is making way for a new model, is unlikely. The Sept. 30 media event that has been announced is likely to focus on the release of Windows 9. If there does happen to be any remarks about the surface business, hopefully it's regarding a move to phase out of it.

Stocks: MSFT