Microsoft's $900 million Surface RT write-down: How did this happen?

Discussion in 'Android Tablet News Depot' started by Spider, Jul 19, 2013.

  1. Spider

    Spider Administrator Staff Member

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    Summary: Microsoft's Surface General Manager reiterated the company is committed to Surface RT and Windows RT, in spite of today's write-down of the company's iPad competitor.

    [​IMG] By Mary Jo Foley for All About Microsoft | July 18, 2013 -- 23:24 GMT (16:24 PDT)

    Microsoft announced a $900 million "inventory adjustment" charge for its Surface RTs, parts and accessories on July 18. That write-down completely overshadowed the performance of the rest of the products and services that contributed to the company's Q4 2013 earnings.

    [​IMG]

    (Among those overshadowed was Office 365 -- the Microsoft subscription service via which it provides Office client and hosted Office server apps. Office 365 is now on a $1.5 billion run rate, up from the $1 billion run rate it hit in Q3 FY2013. Another that got eclipsed: Windows Phone -- plus Android patent licensing -- increased $222 million for the quarter.)

    The biggest question, to my mind, about today's unexpected Surface RT write-down is how did Microsoft find itself in this predicament in the first place? How did officials seemingly misestimate the number of Surface RTs they should have made and how much they should have charged for them?

    I had a chance to ask Brian Hall, the General Manager of Surface Marketing, that very question. Unsurprisingly, he wouldn't address this. But he did say that Microsoft is 100 percent committed to Surface RT and Windows RT going forward and has no plans to drop work on either product.

    At the now-reduced $350 price (plus another $100-plus per keyboard), Microsoft believes it is righly positioned for success with the product, its officials said today. Hall elaborated, by saying that Microsoft officials believe that by getting more Surface RTs into more users' hands, demand will accelerate for the product.
    "We know we need a lot of Surface users to start the fly wheel of people recommending it," Hall said.

    In addition to cutting the price, Microsoft also has slowly expanded Surface RT's distribution, most recently adding a handful of resellers to the mix.
    But many of the factors beyond price that have contributed to the lackluster demand for the Surface RT haven't changed all that much.

    There are still few, if any, "killer" Windows Store apps that might push someone to choose a Surface RT over an iPad or an Android tablet. In fact, the total number of Surface RT apps is still quite low (around 100,000), nine months after the product launched.

    The performance of the Surface RT still feels sluggish, thanks to the Tegra ARM processor powering the device -- though it's somewhat better after putting Windows 8.1 preview on the device.

    There are still relatively few physical stores where potential Surface RT customers can try out a device to see if they're interested in buying one. Microsoft's Surface ads are nothing to write home about, though they have started to get better --

    .

    But again, why did Microsoft make so many Surface RTs? If some back-of-the-napkin calculations are right, Microsoft may be sitting on an inventory of 6 million unsold Surface RTs. (Microsoft won't say how many devices they made or sold.)

    Isn't this a company whose officials have prided themselves on telemetry data and visibility? Yes, it was the first time Microsoft was making its own PCs, but the company has made its own gaming console, mice and keyboards in the past, so there were people at the company who knew a considerable amount about supply chains.

    Would a different operating system have made much, if any difference in the success of the Surface RT? Microsoft spent years porting Windows to ARM and finally launched it in the form of Windows RT. Would acceptance of the Surface RT have been better if Microsoft had just used the Windows Phone OS to power Surface RT instead? (I recall hearing that the relative newness of the Windows Phone OS was at least one of the reasons Microsoft decided against using it.) I asked Hall if Microsoft is or might consider putting the Windows Phone OS on a future Surface RT model and was told no comment.

    Would opting to wait for a more powerful ARM chip have boosted Surface RT sales, even if it meant Microsoft missed holiday 2012 with the devices? Would launching the Surface Pro ahead of the Surface RT have primed the market any better for a device that couldn't run almost any Win32 apps?

    I saw a couple of folks tweet that they now fear that Microsoft will end up discontinuing Surface RT, the same way the company dropped the Zune after finally getting it relatively right with the Zune HD. The damage to the brand and lack of a true competitive product was done by the time Microsoft finally got the mix right. I'd expect the old "we can't hear you" Microsoft to persist with the Surface RT's successors regardless of what the market said/did. The new Microsoft may be less likely to do so, I'd think.

    But Hall reiterated that Microsoft has no plans to stop work on Windows RT or Surface RT. He wouldn't drop any hints about what's next for Surface RT, but recently officials said to expect new Surface accessories and a Surface RT update of some unspecified kind to arrive in fiscal 2014, which ends on June 30, 2014. When I asked if a 4G LTE-enabled Surfce RT device was in the pipeline, Hall would only say "we see lots of tablets sold with LTE."

    Microsoft plans to push the Surface RT as an iPad competitor, emphasizing its role as a "productivity tablet" running Office -- plus its relatively lower price -- as its main differentiators, Hall said.
     
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  2. Spider

    Spider Administrator Staff Member

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    by John Lister on 20130719 @ 08:34AM EST

    Microsoft has revealed that poor sales of its Surface RT tablet computer will cost it $900 million -- making a significant dent in the company's quarterly profits.

    Earlier this week Microsoft revealed price cuts across the full range of its Surface RT devices. That's the type of Surface running Windows RT, a special, slimmed-down version of Windows 8.

    Microsoft has now published its accounts for the three months ending in June and has included a $900 million writedown for Surface RT "inventory adjustments." (Source: cnet.com)

    A writedown is where a company decides one of its assets -- in this case the remaining stock of Surface RT tablets that it has yet to ship to retailers -- is of less value than previously assumed.

    Millions of Surface RT Tablets May Never Sell

    In this case, the size of the writedown suggests Microsoft isn't simply budgeting for the fact that it will get less money than expected for some stock. Instead, it appears the company expects that at least some of the devices will never sell at all.

    While Microsoft isn't revealing details, the figures suggest the company may have several million unsold Surface RT devices. In other words, the Redmond, Washington-based firm massively overestimated demand. (Source: thenewradical.com)

    So, why hasn't the Surface RT done well?

    There are a number of reasons: limited availability, limited opportunity for buyers to examine the device in stores, a lack of applications, and confusion over the difference between two versions of the tablet, including the Surface RT and the Surface Pro.

    However, the writedown revelations suggest the problem isn't simply that the device didn't sell well, it's that Microsoft made far too many devices in the first place.

    Company Profits Hit By Surface Costs

    The writedown has been a major reason for Microsoft's quarterly profits being well below expectations. The company still made a very healthy $5 billion, but stock market analysts had predicted the figure would be around $6.3 billion. The shortfall even led to Microsoft's stock price dropping.

    The big question now is whether Microsoft goes ahead with plans to develop new Surface RT models -- for example, by adding a faster processor or support for 4G mobile broadband.

    Alternatively, it could put all its effort into the more expensive Surface Pro range and just hope to clear out the remaining Surface RT stock.
     
  3. edap

    edap Senior Member

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    Microsoft has posted a FAQ about Surface RT storage, and it reveals that out of the 32GB built into the tablet, only half of that amount is free for users to access. The total disk size thanks to the Windows binary systems is 29GB, and then Windows RT, the Microsoft Office apps, and other built-in apps total an additional 8GB. Throw in another 5GB for Windows recovery tools, and you're left with 16GB of free space right out of the box.
    That's a far bigger footprint than is occupied by iOS and Android on competing tablets. According to PC World, a 32GB iPad provides you with 29GB of free space, while the Android-based Google Nexus 7 tablet offers 13GB of free space on a 16GB model.
     
  4. leeshor

    leeshor Senior Member

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    Microsoft always has loved bloat. The Surface Pro isn't any better when it comes to space used by the system and with every update, (every month, just like desktop Windows), a little more free space vanishes into thin air,
     
  5. PAS1970

    PAS1970 Member

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    That the keyboard is an extra 100 shows they still haven't worked out why it's failed.
     

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