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Microsoft lost $1 billion on unsold Surface tablets

(via Los Angeles Times/AP/Reuters/SMH) | July 19, 2013
The company is taking a USD 900 million charge against earnings due to its inventory of unsold units.

"Embarrassing": How one analyst described the write down. Photo: Reuters

Microsoft appears to be having a hard time selling its Surface RT tablets, with the company taking a $US900 million ($A980 million) charge against earnings due to its inventory of unsold units.

The large write-off may explain why Microsoft cut the price of its Surface RT models by $180 this month and gave away thousands of free Surface Pro tablets to attendees at its developers conference in June. Surface RT runs on a stripped-down version of Windows 8 designed for tablets.

Surface: $980 million charge against earnings due to unsold units.
Surface: $980 million charge against earnings due to unsold units. Photo: AFP

News of the Surface's struggles is a bad sign for the company, considering the tablet was essentially the flagship Windows 8 device and required that Microsoft step out of its software comfort zone and into the world of hardware manufacturing.

The massive write down underlines the struggles of the world's largest software company, which last week announced a deep reorganisation to transform itself into a "devices and services" leader, but is struggling to make mobile computing as attractive as Apple or Google.

Microsoft posted a nearly $US21.9-billion profit for the year, but the company missed analysts' projections for revenue and earnings. Its shares, which closed Thursday at $US35.40, down 30 US cents, slid nearly 6 per cent to $US33.40 in after-hours trading.

Despite missing estimates, Microsoft said it was positioned for growth.

"Our new products and the strategic realignment we announced last week position us well for long-term success, as we focus our energy and resources on creating a family of devices and services for individuals and businesses that empower people around the globe at home, at work and on the go, for the activities they value the most," the company said in a statement.

Microsoft chief financial officer Amy Hood told investors that "this journey will take time".

"We know we have to do better," she said. "We are confident we are moving in the right direction."

But analysts were less enthusiastic.

"It doesn't inspire a lot of confidence," said Nomura Securities analyst Rick Sherlund. "You're in the hardware business now, and pretty shortly after entering it you have a pretty big write down. That's embarrassing."

"That's the biggest miss we've ever seen from Microsoft, the biggest that I could remember," said Brendan Barnicle, an analyst at Pacific Crest Securities. "It looks like everything was weak."

Microsoft will have to do a better job with the Surface, as the company said it would focus more on products like the tablet and other services going forward, rather than just relying on its Windows software.


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