Microsoft's Failed Surface RT Strategy Leads to $900 Million Charge on Unsold Inventory

Paul Lilly

Failed Surface RT strategy costing Microsoft millions of dollars

Remember when Acer tried to warn Microsoft to steer clear of competing in the hardware market, telling the Redmond outfit that the hardware business is like "hard rice" and "is not so easy to eat?" Well, Microsoft should have listened. That's easy to say on hindsight, but it's not as if Microsoft's strategy wasn't fraught with criticism from the get-go. Having ignored the advice of Acer and other hardware partners who weren't stoked about Surface, Microsoft is now paying the price.

That price is $900 million, representative of the charge it took on Surface RT inventory for the quarter ended June 30, 2013. Microsoft also reported net income of $4.97 billion, or 59 cents per share, compared to a $492 million loss in the same quarter a year ago, which was the result of a $6.2 billion "goodwill impairment charge" related to its 2007 acquisition of aQuantive.

Microsoft's performance fell short of expectations, causing shares of the Redmond company to fall nearly 11 percent.

"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. "While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services."

Ballmer recently announced a major restructuring of Microsoft, and while the early signs are less than positive, we'll need at least another quarter before being able to offer up any kind of meaningful analysis on the changes he implemented.

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