Revenue from Microsoft’s Surface lineup topped nearly $2 billion for Microsoft’s fourth calendar quarter—and Microsoft believes so strongly in its success that it’s predicting another 20-percent growth on top of that for the current quarter.

In fact, Surface sales are upending Windows’ traditional role at Microsoft—even though it’s likely Intel’s fault. For even as Surface rises, PC sales are suffering because of a lack of chips, Microsoft said Wednesday.

In all, sales of Microsoft Surface devices grew about 39 percent, “ahead of expectations,” to $1.86 billion, Microsoft chief financial officer Amy Hood said during an analyst call covering Microsoft’s second fiscal quarter of 2019. Overall, Microsoft made $8.4 billion on revenue of $32.5 billion, up 12 percent overall.

There’s another trend: The revenue mix within Microsoft’s More Personal Computing business is expected to shift more toward Surface and Xbox gaming, and away from Windows.

Microsoft Surface Laptop 2 Mark Hachman / IDG

Move over, Windows: For now, Surface is ascendant.

That’s interesting, if only because Microsoft’s three business units generally break down like this: Productivity and Business Processes (up 13 percent to $10.1 billion) is where Microsoft Office lives. Intelligent Cloud (up 20 percent to $9.4 billion) is where Azure and its cloud services reside. More Personal Computing (up 7 percent, to $13.0 billion) is the traditional home of Windows. 

But for this quarter at least, Windows will take a back seat to Surface. Windows OEM revenue dipped, by 2 percent in sales of Windows 10 Pro, and by 11 percent in what Microsoft calls “non-Pro” revenue. Surface soared to $1.86 billion in revenue, and gaming was even higher: $4.232 billion.

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Microsoft: chip shortages are hobbling Windows

Although it’s exciting to think that Microsoft’s Windows division could evolve into the Surface division over the long term, it’s not as simple as all that.

Remember what we learned in October, when Microsoft cracked the top five PC vendors:  Mikako Kitagawa, principal analyst at Gartner, wrote that she didn’t see any change in demand as a result of the ongoing processor shortages at Intel. But there still hasn’t been a corresponding increase in supply—especially at the low end, where Intel interim chief executive Bob Swan acknowledged the shortages but said Intel would focus its efforts on more expensive chips. The idea was that the shortages would be made up by AMD—but AMD CEO Lisa Su didn’t seem particularly interested in low-end products, either, now that AMD has the rich taste of profits in its mouth.



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