Almost two years after its launch, Microsoft's Surface PC-tablet hybrid shows no signs of being a hit.
New figures released by the company to the Securities and Exchange Commission show that in the three months to the end of March 2014, revenues from selling the Surface and accessories was $494m - but the cost of getting those revenues was $539m. That means for every $100 of revenues from Surface, Microsoft spent $109.
Microsoft says in its filing that the cost of revenue "increased due mainly to a higher number of units sold".
In the previous quarter, to the end of December, Microsoft recorded $893m in revenues for the Surface - but cost of revenues were $932m, so it spent $104 for every $100 of revenue.
In the three months to September 2013, revenues were $400m, but cost of revenue was $616m.
Overall, for the nine-month period to the end of March, total Surface revenues were $1.8bn - but cost of revenue was $2.1bn, meaning that it spent $116 to get every $100 of revenue.
Microsoft has produced two revisions of the Surface - which comes in two forms: one running Windows RT, on ARM-based processors, and the Surface Pro, which runs on Intel processors and can run all standard Windows programs. It has just launched a version with LTE connectivity built in.
The Surface was meant to jump-start Microsoft's entry into the tablet market after Apple's iPad, and numerous models running Google's Android software, staked out a new space. Microsoft announced the first version, after developing it in secret, in June 2012, and began shipping them in October.
Steve Sinofsky, then head of the Windows division - but who was later ousted by Microsoft's then-chief executive Steve Ballmer - said of the Surface that it's "a tablet that's a great PC - a PC that's a great tablet."
But consumers seemed less keen. Within months of the launch, industry sources were saying that demand for the device was weak, and that the company had halved orders from 4m units to 2m. Microsoft didn't comment on the rumours at the time, but subsequent data from research companies bore out the suggestion that the Surface RT and Surface Pro devices had sold poorly.
The revenues for the nine months so far of Microsoft's fiscal year, which starts in July, show that the Surface is ahead of its previous year, when total revenues from the devices were just $853m - and it took a $900m inventory charge, in effect admitting that it wouldn't be able to sell an unspecified number of Surfaces that it had had built at the price it had hoped for.
But it also shows that the Surface faces an uphill struggle to get Microsoft, and Windows, established in the tablet market. Estimates have suggested that it sold a total of 1.5m Surfaces to the end of the fiscal year in June 2013, and that in the three months ending December it sold another 1.5m. That would suggest that it sold half as many during the January-March quarter - or around 750,000.
That would tally with data released on Thursday by IDC for first-quarter tablet shipments, which do not show Microsoft in the top five suppliers - the smallest of which, Amazon, shipped 1m devices.
Microsoft said it did not have any figures to share.
The "hybrid" market, which Microsoft was trying to spark into life with the Surface, has so far shown little signs of life.
According to a recent forecast from Gartner, "hybrid" and "clamshell" ultramobiles - which includes the Surface, owing to its built-in keyboard - made up 21.1m shipments in 2013, and will grow 76% to 37.2m this year, and another 66% to 62m in 2015.
That sits against a market where "slate" tablets such as the iPad are making a far greater impact, however. Business adoption of the iPad appears to have been strong, with deployments in banks, insurance companies and airlines. In total, Apple says it sold 74m iPads in 2013.
In its filing, Microsoft acknowledges that Apple has taken a lead in the market, without naming it. One of the notes in the filing about "competition among platforms, ecosystems and devices", comments: "A competing vertically-integrated model, in which a single firm controls the software and hardware elements of a product and related services, has been successful with some consumer products such as personal computers, tablets, mobile phones, gaming consoles, and digital music players.
"Competitors pursuing this model also earn revenue from services that are integrated with the hardware and software platform. We also offer some vertically-integrated hardware and software products and services; however, our competitors in smartphones and tablets have established significantly larger user bases. Efforts to compete with the vertically integrated model will increase our cost of revenue and reduce our operating margins."
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