Microsoft takes $900 million charge on unsold Surface RT tablets

By on July 19, 2013, 7:30 AM
microsoft, tablet, earnings, microsoft surface, surface rt, write off

Microsoft on Thursday posted lower than anticipated earnings which sent shares plummeting in afterhours trading. If that weren’t enough, the company also took a $900 million charge on unsold Surface RT tablets.

For the fiscal fourth quarter, Microsoft’s revenue increase 10 percent to $19.9 billion led by solid sales of the company’s Office suite of applications. Even still, however, it fell short of analysts’ average estimates of $20.7 billion. Overall, Microsoft turned a quarterly profit of $0.59 per share which looks solid compared to the $0.06 loss from the same time a year ago but fell well short of Wall Street’s estimated $0.75 per share profit.

Brendan Barnicle, an analyst at Pacific Crest Securities, said it was the biggest miss that he can remember from Microsoft. It simply looked like everything was weak, he noted.

Last week, Redmond announced a company-wide reorganization that is said to better align itself with its new focus on devices and services. CEO Steve Ballmer told employees via memo that the reshuffling will allow Microsoft to innovate with greater speed, efficiency and capability.

And just earlier this week, Microsoft slashed the price of their Surface RT tablet in a move that now makes a lot more sense given the $900 million write-off. The slate, originally priced at $499 for the 32GB model and $599 for the 64GB unit, is now priced at just $349 and $449, respectively.

Share prices dropped by more than six percent in afterhours trading as of writing following a five year high. Stock is Microsoft was up 32 percent this year before the mass selloff following the earnings report.




User Comments: 43

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1 person liked this | tipstir tipstir, TS Ambassador, said:

Sell those Windows Surface RT for $99 bucks right now, then watch them fly off the shelves, like they did with the cabbage patch dolls in the 1980's.

Chazz said:

So they posted 4 billion profit off near 20 billion in revenue. Not good enough.

Guest said:

That's only 2% profit. It's easy to look at a number in the billions and say that good enough, but you really need a bigger return than 2% no matter the total dollar amount.

1 person liked this | Guest said:

I was looking forward to the Surface as an alternative to my laptop. But terrible advertising strategy. They had young people around a conference table dancing! Who were they targeting? There is usually at least one "middle aged manager type" person in most meetings in any office around the world. Not a single manager type person in that commercial. In contrast, I was not an iPad fan when it was launched, I saw the commercial when they showed how to turn a page. I was sold at that point. Ballmer is very rich and one of the best operational managers in corporate history, a visionary he is not. Steve Jobs knew exactly how to market his tablet.

misor misor said:

Sell it cheaper and for 150-250$ equivalent, I'm buying.

1 person liked this | GhostRyder GhostRyder said:

If they go too much cheaper, they wont make any money on them, if you think about it, these things are a decent buy for what your getting. I got the PRO version, but even the RT was pretty good as far as tablets go. Im not saying go out and buy one, they are the best thing ever, I just think a lot of people are ignoring them based on the fact they don't like Windows 8, mine surface works very well and is quite fun to use.

2 people like this | mailpup mailpup said:

I was looking forward to the Surface as an alternative to my laptop. But terrible advertising strategy. They had young people around a conference table dancing! Who were they targeting? There is usually at least one "middle aged manager type" person in most meetings in any office around the world. Not a single manager type person in that commercial. In contrast, I was not an iPad fan when it was launched, I saw the commercial when they showed how to turn a page. I was sold at that point. Ballmer is very rich and one of the best operational managers in corporate history, a visionary he is not. Steve Jobs knew exactly how to market his tablet.
Perhaps you didn't intend to but from what you posted it sounds like you base your buying decisions exclusively on commercials. You are certainly free to do so but I would look into it a bit more than that.

JC713 JC713 said:

If this was $400 with a keyboard and the desktop was more flexible, I would give you my money right now.

nismo91 said:

I kinda hope they sold it at a bargain. remember hp touchpads? lol

2 people like this | Jim$ter said:

Sell it cheaper and for 150-250$ equivalent, I'm buying.

I agree they need to sell them cheaper. If they want Windows 8 to have a chance take a loss on the surface and start to saturate the market or your gonna lose!

Everyone I talk to hates Windows 8. That a image they need to change. The need to fix Windows 8 o the desktop and sell the surface cheaper. Then they will start doing better. I don't think 8.1 is going to change the mind of desktop users much. I will still have to install start8. I get calls all the time from people with new computers. Windows 8 is just way to confusing for normal basic users who just want to be on the internet and do their basic stuff.

I might buy one at $199 with keyboard...but not at $349. Still too expensive. They should compete with Android not iOS!

Jim$ter said:

Ohh that's lovely it didn't post anything I said...not typing all that again.

But I agree sell it cheaper. $199 with keyboard and I will but one

MilwaukeeMike said:

I was looking forward to the Surface as an alternative to my laptop. But terrible advertising strategy. They had young people around a conference table dancing! Who were they targeting? There is usually at least one "middle aged manager type" person in most meetings in any office around the world. Not a single manager type person in that commercial. In contrast, I was not an iPad fan when it was launched, I saw the commercial when they showed how to turn a page. I was sold at that point. Ballmer is very rich and one of the best operational managers in corporate history, a visionary he is not. Steve Jobs knew exactly how to market his tablet.

I agree... Microsoft wanted to compete with the iPad so they tried to be cooler than Apple. In my opinion, they could be cooler than Apple, but you can't do it by standing on a table and telling everyone you're cooler than Apple.

Remember the Apple vs. PC commercials where that trendy hipster looking dude would talk to the chubby guy in the suit and glasses? that's how you do it... Like how Samsung made themselves cooler than Apple by showing adults at the grad party bumbling on their iPhones while the grads used Galaxies. You have to let the consumer decide who's cooler.

1 person liked this | Geforcepat Geforcepat said:

Lol! are they really surprised?it's a wonder it didn't hit a 1.+B write off.lowering the price still is not gonna help any.

treeski treeski said:

Lol! are they really surprised?it's a wonder it didn't hit a 1.+B write off.lowering the price still is not gonna help any.

Whether they took a hit from the Surface sales or not, they'd still need to lower the price to move the rest of the inventory, so they can make way for Surface 2.

Guest said:

Isn't that 20%?

Tekkaraiden Tekkaraiden said:

I actually received an email from microsoft offering to sell me one. I figured I'd take a look so I clicked the link and wasted 15 mins trying to find it.

Geforcepat Geforcepat said:

Whether they took a hit from the Surface sales or not, they'd still need to lower the price to move the rest of the inventory, so they can make way for Surface 2.

Ha,whens the last time m$oft lowered the price on anything to clear room for something?especially when it's only about a year old.surface 2 will suffer the same fate.I think most people

know this(except microsoft of course)

2 people like this | psycros psycros said:

The only question is how long Microsoft will pursue their failed Windows 8/Metro strategy before they come around. To the consumer, Microsoft *is* the PC desktop. Nobody wants their PC to look and act like a phone. They should completely retool Metro to make it attractive and user-friendly like other mobile UIs and sell it only on phones and tablets.

Guest said:

Great windows 8, just great.

Kneep said:

This, at least in Canada why MS doesn't do well here with there Surface, RIP-OFF

[link]

[link]

Kneep said:

The only question is how long Microsoft will pursue their failed Windows 8/Metro strategy before they come around. To the consumer, Microsoft *is* the PC desktop. Nobody wants their PC to look and act like a phone. They should completely retool Metro to make it attractive and user-friendly like other mobile UIs and sell it only on phones and tablets.

Agreed

TheBigFatClown said:

If they go too much cheaper, they wont make any money on them, if you think about it, these things are a decent buy for what your getting. I got the PRO version, but even the RT was pretty good as far as tablets go. Im not saying go out and buy one, they are the best thing ever, I just think a lot of people are ignoring them based on the fact they don't like Windows 8, mine surface works very well and is quite fun to use.

Silly people, not purchasing Surface RT tablets just cuz it has Windows 8 installed. People are so shallow.

tipstir tipstir, TS Ambassador, said:

Tablet

Android - $59 and up (32GB)

Surface RT $349 and up (32GB)

Prices should be like this...

Tablet

Surface RT $99 to $149

Surface Pro 32-bit Powered by Intel Atom Dual Core 1.8GHz $199 (32GB)

Surface Pro 32-bit Powered by Intel Atom Dual Core 1.8GHz $249 (64GB)

The other 64-bit i5 Surface Pro really expensive..

Nothing to do with Windows 8 on there, it has to do with pricing these tablets.

Microsoft pricing is high since everyone including the Corp VP, Corp CEO get high salaries

so they pass down those high wages in higher cost for the Surface Tablets.

To restructure a company like Microsoft on whole needs to start from the Corp top and work down.

It's all about profits with them not about the customer needs or what they can get for they're money today.

Windows 7 will be the last of it's kind and everyone uses it more than Windows 8. Things will change

in the coming years. Surface will sell more but right now, Microsoft needs to get it's Corp House in order!

yukka, TechSpot Paladin, said:

Sell them cheap and make money from apps. But unfortunately they were hamstrung by their partners into pitting the price higher so they didn't undercut other windows 8 tablets. Not ideal and its had the expected result.

1 person liked this | Railman said:

The problem is W8 RT. For the money they charge for the RT Surface you can get a fairly powerful laptop or PC that will run the full version of Windows 8 (or 7). The Surface RT only runs cut down versions of Window Office and you cannot run your legacy apps etc.

1 person liked this | cliffordcooley cliffordcooley, TechSpot Paladin, said:

Silly people, not purchasing Surface RT tablets just cuz it has Windows 8 installed. People are so shallow.
Yikes!

I must face the truth and confess. I am shallow!

But in everyones defense, there are reasons not to get the RT version. It is not backward compatible with older Windows applications. If I were to get a Surface, it wouldn't be the RT version.

Teko03 said:

Silly people, not purchasing Surface RT tablets just cuz it has Windows 8 installed. People are so shallow.
Yikes!

I must face the truth and confess. I am shallow!

But in everyones defense, there are reasons not to get the RT version. It is not backward compatible with older Windows applications. If I were to get a Surface, it wouldn't be the RT version.

I personally owbn one and really don't see why this is an issue for people. I don't have a need to run legacy applications on this thing, I mean it's a tiny 10.1 inch screen. I'm using it as a tablet --- because wel, IT'S A TABLET, that just so so happens to offer a little more. Who goes to purchase an iPad and gets angy because they can run the OSX version of Aperture, Adobe Photoshop Lightroom or Pro Tools --- seriously LOL

Guest said:

In response to those saying that Microsoft should price Surface for $99: that would yield no profit per tablet sold and would only further alienate OEM partners... I think the pricing is about right for the RT right now, they just need to focus on better marketing and enriching the Windows 8 ecosystem, particularly the apps. The OS isn't bad it just needs more quality apps.

Surface Pro with Haswell (improved battery life) for $100-200 less than it is right now would certainly look appetizing to me.

Railman said:

But why get a Surface RT if it cannot be used for serious work? Quite a few of the forms I use at work depend on macros. None of those forms would work in the RT version of Office. RT might be fine for someone who just wants to write the occasional letter, email and the Web but I dare say the same is possible for most tablets. Why buy an expensive Surface RT unless you have money to burn.

inventix1136 said:

Silly people, not purchasing Surface RT tablets just cuz it has Windows 8 installed. People are so shallow.
Yikes!

I must face the truth and confess. I am shallow!

But in everyones defense, there are reasons not to get the RT version. It is not backward compatible with older Windows applications. If I were to get a Surface, it wouldn't be the RT version.

I personally owbn one and really don't see why this is an issue for people. I don't have a need to run legacy applications on this thing, I mean it's a tiny 10.1 inch screen. I'm using it as a tablet --- because wel, IT'S A TABLET, that just so so happens to offer a little more. Who goes to purchase an iPad and gets angy because they can run the OSX version of Aperture, Adobe Photoshop Lightroom or Pro Tools --- seriously LOL

The issue with the RT is that it does not have the breadth of applications that Android or Apple has and it also does not have the performance of the other tablets. I have a Asus T700t (Infinity) and it is more powerful with much better screen with higher resolution and much better cameras -- and it costed me LESS than the 32GB Surface costs.

P.S. I do have a Lenovo Yoga 13 which is running Windows 8 and I can either run it as a Metro (RT mode) or the desktop mode with legacy applications -- MUCH more flexible than just the RT...

cliffordcooley cliffordcooley, TechSpot Paladin, said:

P.S. I do have a Lenovo Yoga 13 which is running Windows 8 and I can either run it as a Metro (RT mode) or the desktop mode with legacy applications -- MUCH more flexible than just the RT...
Unless I am missing something Metro is not RT mode. Windows RT is specifically programmed to run on ARM instead of x86, which is why Windows RT will not run Windows x86 applications.

x86/x64 vs ARM: What's the difference anyhow?

<snip>

That difference in hardware is why ARM processors use less power than x86/x64 processors at the same clock speed. Mind you, it also means that some programs run faster in x86/x64 processors than they do in ARM processors with the same specs --- an algorithm that takes 3 cycles on an ARM processor can take 1 cycle on an x86/x64 processor if it's been wrapped into a CISC combo-instruction. It's also why programs built for x86/x64 can't run in ARM --- once you compile a program for x86/x64, it's hardcoded to use these combo-instructions, and there's no translation to ARM from there.

Guest said:

I recall they discontinued webOS less than two months after launch, and put the devices on fire sale ... did YOU buy a dead-end device for cheap ?

tipstir tipstir, TS Ambassador, said:

Can't compare the ARM SoC (system on chip design) MPU vs Atom x86 of x64. Android uses Java as a base to run the apps you on it. ARM on that ranges from 720MHz single core and up to quad core today but that's a whole story there.

Windows RT more aim for others to get to use most business would deem a Wise Terminal device so only certain software can be installed on it. But business is not that quick to support anything new.

Face it! Microsoft current CEO decided to go with the Windows RT and DELL along with ASUS too. The prices on these tablet are just frankly higher than I had expected! They need to not use iPad pricing for the pricing of the Surface. Price compare isn't what we should be after.

Everyone who owns Windows OS (desktop, workstation, server , netbook, and laptop) should own Surface Tablet right? In this case only a limited number of them did just that.

Surface and iPad are not the same and those commercial ads just make the tablet concept look bad for MS even though to me funny.

As for the Surface RT will it just not sell at $349 (hey MS still to high) trying selling at the student rate of $199 with the keyboard attachment, might help you some and forget about the OEM pricing.

Focus on Windows 8 or whatever your going to do with it. Right now Surface mess and Windows 8 issues like keyboard won't engage when you swipe or touch the sport for it. Random this happen.

Again if there is a sale people will buy anything. If Big Lots gets a hold of the Surface RT and sells it for $99 bucks you know it would be a mean dash out to those chains here in the USA.

2 people like this | ikesmasher said:

Sell the surface PRO for $300 and ill buy.

avoidz avoidz said:

Sell the surface PRO for $300 and ill buy.

Definitely. RT is a waste of time and money for most Microsoft users.

Railman said:

I will shortly be building a new PC and I expect the cost to be about half the cost of the Surface RT. However it will be considerably more powerful and adaptable than the RT. I don't see any logical reason to get a Surface RT.

ikesmasher said:

I will shortly be building a new PC and I expect the cost to be about half the cost of the Surface RT. However it will be considerably more powerful and adaptable than the RT. I don't see any logical reason to get a Surface RT.

true. And even if people DO bring out the portability argument, I have aleady seen a ton of touch-screen convertible laptops running x86 windows, and they are all significantly more powerful. these are in the $500-$750 range, too.

amstech amstech, TechSpot Enthusiast, said:

Windows RT wasn't a complete miss/mistake, it was just priced WAY too high. Even after the price cuts, its still priced too high.

St1ckM4n St1ckM4n said:

Wow the amount of butthurt in this thread is unbelievable. If you don't realise the purpose for Surface RT, you shouldn't be commenting.

Surface Pro is the actual Surface product. It's priced at a small premium (not counting the ridiculous covers), but it's a unique design and sits well amongst other Ultrabooks. If you deny this, then there's nothing to talk about.

Surface RT only exists because there was a possibility to use the Windows kernel for a lower-power device on ARM. At $350, it's priced very competitively against every other tablet that costs $450+. It's also unique as it is running MS Office (go away with your macroing needs, this device isn't for you obviously) and has tight MS integration, which no other tablet can hope to achieve. The limit to Metro-only apps sucks, but that's what happens with a brand new environment. And that's also why it's priced below competing Android and Apple.

Railman said:

Selling a cut down version of Office is basically dishonest. I think it should have been named MS Works.

1 person liked this | cliffordcooley cliffordcooley, TechSpot Paladin, said:

Doesn't Surface RT come with Office pre-installed, so technically they are not selling a cut down version?

St1ckM4n St1ckM4n said:

Doesn't Surface RT come with Office pre-installed, so technically they are not selling a cut down version?

EXACTLY.

A general consumer who has no need for Office processing on the go, the Surface sucks. The app store is empty, no games, etc.

For a student etc who would like Word/Excel on the go in a small portable package? Good luck getting an Android/iOS app that has as much functionality and compatibility as Office.

For an IT pro in a windows environment? The GP and AD sync along with ability to natively RDP into servers and the like in a small portable package, very useful.

Railman said:

But it is a cut down version of Office. No use if you need Macros. You may not think you need macros but try using an imported spreadsheet that uses them you are stuck.

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