Weak Surface RT sales cost Microsoft $900M writedown

A week after Microsoft offered partners $99 Surface RT tablets at its Worldwide Partner Conference, and days after retailers put the tablets on sale, the vendor is taking a $900 million hit on weak sales of its value Windows tablet.

Microsoft released its fourth quarter and fiscal 2013 results Thursday, and the numbers aren’t pretty. While non-GAAP revenue rose by three per cent, operating income was down by 24 per cent and diluted earnings per share was down 29 per cent. As reported (GAAP), Microsoft had net income of $4.97 billion on operating income of $6.07 billion.

The results were weakened by a $900 million charge Microsoft said was related to Surface RT inventory adjustments. The charge was not otherwise directly addressed in Microsoft’s earnings press release.

“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, Outlook.com, Skype, and Xbox LIVE,” said Amy Hood, chief financial officer at Microsoft, in a statement. “While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”

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For fiscal 2013, Microsoft reported GAAP operating income of $26.76 billion on revenue of $77.65 billion.

“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,” said Microsoft CEO Steve Ballmer, in a statement. “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.”

Microsoft’s Surface RT strategy has been rocky since the product debuted last fall. Critics attacked it as limited as it can only run applications available in the Windows store. Microsoft also limited its distribution to its own retail stores and web site, before weak sales led it to expand sales to select retailers such as Best Buy, Staples and Future Shop.

Author: Jeff Jedras

A veteran technology and business journalist, Jeff Jedras began his career in technology journalism in the late 1990s, covering the booming (and later busting) Ottawa technology sector for Silicon Valley North and the Ottawa Business Journal, as well as everything from municipal politics to real estate.He later covered the technology scene in Vancouver before joining IT World Canada in Toronto in 2005, covering enterprise IT for ComputerWorld Canada. He would go on to cover the channel as an assistant editor with CDN.His writing has appeared in the Vancouver Sun, the Ottawa Citizen and a wide range of industry trade publications.

2 Comments

ITCHAMP says:
July 22, 2013 at 5:02 pm
Serves them right, they mysteriously go with strategy of selling BUSINESS targeted tablets at a retail level and shut out all partners and distribution channel, then they wonder why they aren’t selling many ! LOL !
azz156 says:
July 23, 2013 at 2:26 am
“Critics attacked it as limited as it can only run applications available in the Windows store”
I don’t get this bit, name a different tablet from the competition that lets you install desktop programs? if you need desktop programs buy the x86 version. just remember the surface rt is suppose to be a tablet like the ipad which can only get apps from the app store.