Welcome to the post-PC world, Microsoft: $900M in unsold Surface RT inventory

By , Jul 18, 2013

Microsoft Surface (multiple devices on table 001)

Microsoft last June unveiled its iPad contender, the ARM-powered Surface RT tablet. We’ve suspected all along that it hasn’t been much of a smash hit.

Nine months later, the Windows giant admits defeat by announcing it will be taking an astounding $900 million loss over unsold Surface RT inventory.

The top dogs called it an “inventory adjustments”. Our take: these things would not have been collecting dust in the warehouse if they were flying off the shelves like hotcakes…

The massive $900 writedown (a loss of $0.07 per share) reflects the new market value of the unsold Surface RT units in Microsoft’s inventory after the company earlier this week slashed all Surface RT devices by $150 to $350, down from the original price of $499.

In the meantime, Apple continues to sell its iPad like there’s no tomorrow.

Losses notwithstanding, Microsoft is “100 percent committed” to the Surface business and confirmed there are no inventory issue with the Surface Pro, which could also be interpreted as ‘hey, we underestimated demand there’.

Remember this?

The gist of the just-announced June quarter earnings: revenue was up ten percent to $19.9 billion, net income was $4.97 billion with earnings per share at 95 cents (includes the $900 million writedown).

Amid grossly declining PC sales, the Windows division’s growth was about six percent.

The Entertainment and Devices Division – which includes Xbox and Windows Phone – grew 7.5 percent to $1.9 billion in revenue. Revenue from Windows Phone licenses and patent licensing is up by $222 million.

The Business Division (includes Office) grew fourteen percent for a 7.2 billion in revenue.

Interestingly enough, the company hasn’t divulged Windows 8 license sales. Both Microsoft and Google missed estimates (the Apple syndrome?) so their shares tanked by nearly five percent each in after-hours trading.

For the full fiscal year, Microsoft posted $77.85 billion in revenue, with operating income at $26.74 billion. By comparison, Apple in its last quarter alone collected $9.5 billion in net profit.

Here are your key metrics, courtesy of The Verge.

Matter of fact, if it weren’t for the profitable Xbox and entertainment division, Microsoft would be in the same boat as Apple in terms of the negative sentiment on Wall Street.

“That’s the biggest miss we’ve ever seen from Microsoft, the biggest that I could remember,” Pacific Crest Securities analyst Brendan Barnicle told Reuters. “It looks like everything was weak and that’s what we need an explanation on”.

Of course, Microsoft is filthy rich and can afford to lose a billion here and there.

Microsoft Online division 2005-2013 loss (Business Insider)

Case in point: the software giant’s Online group, which since 2005 posted a cumulative loss of an astounding $11.98 billion. Including the $6.2 billion right down for the aQuantive acquisition brings the total loss for the Online group since 2005 to a whopping $18.2 billion, according to Business Insider.

Of course, Microsoft repeatedly cautions it enters markets for the long haul and is willing to burn through its cash in order to become a viable player. That’s what they have done rather successfully with the Xbox, that’s what they were hoping to accomplish with the Zune adventure and now they’re pulling the same trick with the Surface.

Still, a loss of nearly a billion dollar from failed tablet sales in less than a year? No amount of iPad bashing television commercials will erase that “milestone”.

Matt Burnds of TechCrunch summed it up best:

“Windows RT should not exist as a consumer-facing product,” he opined. “It’s a reactionary move against the iPad and the multitude of Android tablets flooding the market”.

Instead, he advises Microsoft focuses on selling its tablet to enterprise and small business users.

If Apple took such a huge hit on the iPad, I imagine Wall Street would be promptly pushing for a CEO ouster.

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  • Erny Carrillo

    They can sell them cheaper!!! Perhaps ppl buy them then.

    • felixtaf

      The whole RT is a joke… Surface pro with win 8 pro is a good competitor for iPad.. But the price is too high…

      • ✪ aidan harris ✪

        The Surface pro can run full blown Windows 8 and spec wise is better than the iPad if I remember rightly which is why it’s so expensive. Then again what would you rather hae a Surface Pro or a MacBook because I know what I’d have…

      • felixtaf

        Agree. But, Asus is selling 15.6″ Ultrabooks with Core i5, 6GB ram ,750HDD+24SSD & Win 8 for ~650$. Price is too high on Surface Pro. If Microsoft really wanted to have some share in tablet space, the price shoud have been right for Surface Pro. Microsoft makes some awesome hardware and they ruin it with price or ridiculous conditions (XBOX one).

      • shar

        reasoning Surface Pro’s value based on iPad is the wrong approach which is the reason why microsoft was not successful. iPad sells based on royalty and can handle high profit margins (for now), but Surface as a new product does not have such royalty and peopling looking into it are those looking for better specs and more functionality (full OS). so basically just for having better specs does not mean the prices are justified, they were greedy to want to have high profit margins like apple, which backfired on them. they should have kept profit margins reasonable and competed with apple and not sell something that sounds like “iPad, specs you would have got if you paid more “

  • Eric

    FYI – I just went to Fry’s Electronics to pick up one of these RT tablets because of the price drop.

    The (very honest) Sales Rep informed me that the RT Windows DOES NOT run Windows programs that are not sold through the Official Microsoft website.

    In other words – if you have older MS Software or proprietary Windows Software (i.e. built for your company) you will NOT be able to run it on the Surface RT!

    So, check first before you buy.

    If you want a tablet that will run all Windows programs – you have to fork out an extra $500 for Microsoft’s Surface Pro tablet…… (yea, I agree!)

    • Byron Davis

      This is because RT runs on Arm processors and not x86. Legacy apps will not work on rt but will on pro since it’s x86.

      • felixtaf

        Why the pro starts at 899$? Surface pro shud have been like 500-600$…

  • Yujin

    If you want one, just wait a few months and get it free with an Xbox. Or $99 a la HP

  • Roger Riekki

    And Microsoft was bashing the iPad in their commercials, idiots.

  • @sexyhamthing

    Maybe if microsoft didnt throw pennys at dance artists for their adverts.

  • Markus Hudobnik

    I love windows 8 but I hate the surface RT. make the pro $500 and you got my money

  • seyss

    Microsoft = Windows + Office

  • seyss

    surface is a joke. crashed on introduction and only dorks buy it

  • blastingbigairs

    Gimmicks die hard.

    • ✪ aidan harris ✪

      You might end up biting you’re words there. People said the iPad was a gimmick and look at it now! However for me if the RT is to catch on it needs to be cheaper and also have greater support of developers which is of course difficult since I think developers need to make their apps twice for RT and for Windows 8…

      • blastingbigairs

        Yes, but the iPad comes from a pedigree of greatness, not a dying breed. Microsoft is going down in flames, and I for one will no longer purchase continually slowing, virus susceptible, outdated, garbage. Mac for life!

      • Joseph

        “Going down in flames”

        Last I checked they still have the highest worldwide OS usage and have no sign of slowing down. I personally want to try OS X but can’t (not affordable!), and Linux doesn’t run what I need it to.

        Microsoft’s platform is virus susceptible due to what it’s built off of (not Unix!). Personally, I think the only people that being up that Macs don’t get viruses are the people that go to sites that would normally give it to them (quit to porn). Macs have a smaller worldwide usage, and aren’t as temtpting to even try to break into because of it. The amount of viruses Windows has is actually an indication of it’s popularity. Besides, patches are pushed out every Tuesday (even for XP, which is 10-11 years old!), so I’d hardly call it outdated.

      • blastingbigairs

        Once you go Mac, you will never look back. I run a 2010 24″ iMac that still does circles around any new PC ( I use a high-end Windows 8 machine at work). It’s a true case of you get what you pay for. You can pick up a used Mac for the same price as a new PC, and you will not be disappointed I promise.

      • Chindavon

        Plus, do you remember the article earlier this year that the best Windows machine is actually a Mac?

      • Joseph

        Go 17″ you never go back. :) That might cause some problems.

      • blastingbigairs

        Classic!

      • Joseph

        Haha. But really, I have a laptop with a 17″ screen and I can’t imagine going back to a smaller size.

      • ldness

        If you look at Microsoft’s attitude towards security over the years, you will understand that the larger attack surface is only part of the problem. Who brought you Active-X controls that allow any website to push executable content to your computer? Who put active scripting into every Office program, and made you frightened to open up documents? Who gave you a completely insecure-by-default computer where any program could have a party in your registry and systems folder?

        True, Microsoft finally got wise and fixed these mistakes – after about 10 years! The fact is, if they produced a truly secure OS, we wouldn’t need to fight an absurd and losing battle against malware with ridiculous virus checkers that rarely work and are often as bad as the problem they try to prevent.

      • Chindavon

        Uhh.. iPad was a smash hit the minute it hit store shelves and still a smash hit years and years later. That’s the difference. The surface RT killed itself the minute it wasn’t a full fledged Windows OS and the price point.

      • Gorgonphone

        Yup and then the “real” one took too long to come out and was over priced and boring.. he silly thing costed as much as 3 dam laptops what a mess

      • Gorgonphone

        um ZUUUUUUUUN

  • Misti curia

    From this,Xbox one, windows 8, and windows phone… Microsoft has lost its touch

  • Gorgonphone

    yup i told yall this surface BS is just another ZUUUUN, just bigger and lamer and more expensive….lol so here we are with massive amounts of unsold units that will soon be discounted and still wont sell… Ipad has murdered any product that even thinks about being a tablet..lol

  • Al

    And the Microsoft Surface is still garbage! Only people that buy them are breakdancing office table dancers!!!

  • Fabio Rodrigues

    ohh guys, remember “it clicks!” hahahahah :D

  • madjr

    I just hate the interface ;/