Microsoft writes off nearly $1B to account for Surface RT bomb

Tablet flop hits earnings, which missed Wall Street's expectations by large margin

Microsoft today took an unexpected $900 million charge to account for what it called "inventory adjustments" for the Surface RT, the poor-selling tablet that debuted last year. Its fourth-quarter fiscal numbers -- published on its website shortly after the U.S. financial markets closed -- pointed out the massive write-down.

The company has been aggressively discounting the Surface RT, which runs the scaled-down Windows RT, a tablet-specific version of Windows 8 that relies exclusively on the Metro tile-based user interface and app ecosystem.

[ InfoWorld's Woody Leonhard says it's truly do-or-die decision time for Windows RT. • Galen Gruman's review of the Surface RT when it shipped last year shows why it failed. | Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. ]

On Sunday, for instance, Microsoft chopped the price of the Surface RT by $150, or 30% for the 32GB model, to bring it down from the original $499 to $349. The 64GB Surface RT was also discounted by $150, a 20 percent price cut from $599 to $449.

Today's $900 million write-down reflects not only those discounts, but also the extended inventory that Microsoft believes it may never sell.

Microsoft today reported revenue of $19.9 billion for the quarter ending June 30, a 10.3 percent increase over the same period the year before. But earnings of $5 billion, or 59 cents a share, were significantly below Wall Street's expectations of 75 cents a share.

During the second calendar quarter of 2012, Microsoft recorded earnings of just $192 million because of a pair of one-time charges: a $540 million revenue deferral tied to the then-upcoming Windows 8 upgrade program, and a $6.2 billion write-off to account for the loss of goodwill for its online services group.

Amy Hood, the company's new CFO, acknowledged in a statement that, "Our fourth [fiscal] quarter results were impacted by the decline in the PC market" and added, "While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services."

Last week, Microsoft announced a corporate overhaul and spelled out its new strategy to become a devices-and-services seller after nearly four decades of selling packaged software.

This article, "Microsoft writes off nearly $1B to account for Surface RT bomb," was originally published at Computerworld.com. Gregg Keizer covers Microsoft, security issues, Apple, Web browsers, and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+, or subscribe to Gregg's RSS feed. His email address is gkeizer@computerworld.com. See more by Gregg Keizer on Computerworld.com. Read more about Windows in Computerworld's Windows Topic Center.

This story, "Microsoft writes off nearly $1B to account for Surface RT bomb" was originally published by Computerworld.

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