The Microsoft Surface hardware business, encompassing the Surface Pro tablet, Surface Book laptop, and Surface Studio desktop PC, shrunk revenues 26%, a $285 million decrease, over the same period in 2016.
The reason for the decline, according to Microsoft: "increased price competition in the premium 2-in-1 category and product end-of-lifecycle dynamics."

No doubt, that's not great news for the Surface business. Still, in a weird but real way, it's good news for Microsoft.
"Increased price competition" just means that other manufacturers are building their own Surface-style, high-end convertible tablet/PC devices, and selling them for less than Microsoft's own product lineup.
This would be a PROBLEM if, like Apple, Microsoft was a hardware company. But the whole POINT of the Surface products in the first place was to get PC manufacturers building more touch-friendly, stylus-friendly Windows tablets and computers.

There is no doubt in our minds that it’s time for the Surface Pro 5. Because Surface sales have dropped 26% year-on-year, it’s concerning that we didn’t see the next iteration of Microsoft's tablet-that-can-replace-your-laptop at the company’s #MicrosoftEDU event, where it revealed the Surface Laptop.