What a Business Model

Economies of scale continued to elude Microsoft's Surface line as the tablet lost more money in the March quarter than in the preceding three-month period, regulatory filings showed.

In a 10-Q filed Thursday with the U.S. Securities and Exchange Commission (SEC), Microsoft reported $494 million in revenue from the Surface, the tablet line-up that debuted in 2012 and was refreshed last year. Revenue was down 45% from the December quarter but up more than 50% from the same quarter in 2013.

Microsoft pegged cost of revenue for the Surface at $539 million in the quarter that ended March 31.

The difference between what it brought in and what it laid out, and thus the amount Microsoft went into the hole on the Surface, was a tidy $45 million in the March quarter, $6 million more and 15% larger than in the period that ended Dec. 31.

Over the past nine months, Surface generated about $1.8 billion in revenue, while the cost of revenue ran $2.1 billion, a loss of approximately $300 million. The largest portion -- $216 million -- was in the September 2013 quarter.

As it did in January, Microsoft credited the larger loss to "a higher number of units sold," illustrating that the company continues to lose more money the more Surfaces it sells.

If MSFT sells enough Surface units they may just go broke!!