Microsoft Takes Almost $1 Billion Charge on Unsold Surface RT Inventory - The UpStream

Microsoft Takes Almost $1 Billion Charge on Unsold Surface RT Inventory

posted Sunday Jul 21, 2013 by Nicholas DiMeo

Microsoft Takes Almost $1 Billion Charge on Unsold Surface RT Inventory

I think everyone thought Acer was crazy when they told Microsoft back in August to stay out of the tablet industry. However, days after the launch of the latest line of Windows 8 and WinPho 8 products, including the Surface RT, Microsoft's President of Windows, Steven Sinofsky, left the company, which clearly meant Ballmer & Co. believed that the launch of the Surface RT either could have been better or that RT in general was a bit crazy. It appeared that Sinofsky seemed confident RT would take off and excel well in the market, however the numbers from this week's earnings call leads us to believe Microsoft was right in removing Sinofsky from his position.

Microsoft took a charge-off on the remaining Surface RT inventory, along with their recent discount adjustments for Q3 ending June 30th that came to a total price of $900 million. That's quite a big number, even considering that some of it was for the sharp price cut of the devices just two weeks ago. Amy Hood, CFO for Microsoft, also noted that the charge-off includes an unspecified number of components purchased, which we can assume is for parts that haven't been used to build new Surface tablets and also for accessories.

In regards to the announcement, Hood commented on the state of the company as a whole.

While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365,, Skype, and Xbox LIVE. While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.

Steve Ballmer, who's still around for now, added,

We are working hard to deliver compelling new devices and high value experiences from Microsoft and our partners in the coming months, including new Windows 8.1 tablets and PCs. 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.

With the rumored Surface Mini and Surface 2.0 right around the corner, it doesn't surprise me that Microsoft is clearing out and taking back all of the first-gen devices. Plus, with the Ballmer-mentioned company restructuring and realignment, it's going to take a quarter or two to see any real changes reflected in sales number. For now, all we can do is sit back and wait, and hope that we see some new hardware in the near future. Until then, enjoy the latest Microsoft ad against the iPad after the break. It's the best one yet, and includes the iPad questioning its attractiveness.


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