Microsoft's Surface numbers don't add up

How in the world did Microsoft sell $400 million worth of Surface tablets last quarter? My bet: It didn't. Not even close

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How is it possible that Microsoft doubled the number of units sold between Q2 and Q3, and raked in $400 million in the three months between July and September 2013, after writing off $900 million in June 2013 -- and having sold just $853 million in the eight months between October 2012 and June 2013? Sales were so bad that Microsoft dropped 30 percent off the price of Surface RT tablets in July.

Keep in mind that all Q3 Surface retail sales were of the old models -- the much-maligned Surface RT and Surface Pro -- and the Surface 2 and Surface Pro 2 didn't go on sale until last week. Perhaps everybody and his great-grandfather suddenly decided over the summer to buy a Surface, knowing that the new models were coming out shortly?

Frankly, I think that Microsoft's leading us all down a merry path once again, and that the back-of-the-envelope guesstimates of 1 million Surfaces sold in Q3 (that's $400 million divided by a $400 average price) are all hot air. It sure looks to me like Microsoft is repeating its old -- and perfectly legal -- method of reporting shipments, not sales, and letting the trade press stumble all over itself sending out inaccurate messages.

We saw that happen with the report that Microsoft had sold 900,000 Surface RT tablets in the fourth quarter of 2012. Balderdash. The same kind of shenanigans happened back in December 2010, when Microsoft announced it had "sold" 1.5 million copies of Windows Phone 7 in its first six weeks. Pshaw. Not even close.

Taking these make-believe numbers seriously, you might be tempted to conclude that Microsoft "sold" 900,000 Surface RTs in Q4 2012 and 1 million Surfaces (of all types) in Q3 2013. Counting back, based on Hood's comment, that would mean 500,000 sold in Q2 2013 and an unknown number -- IDC says 900,000 -- in Q1 2013. The total would be 3.4 million Surfaces.

Apple just happens to publish its sales figures, and we know that Apple has sold 170 million iPads to date. If Microsoft's fantasy tally was correct, Surfaces would account for roughly 2 percent of tablet usage. In fact, Surfaces run about half that rate, based on data gathered by Chitika Insights.

So where did the $400 million and doubling in unit shipments come from?

In August Microsoft announced "the first international channel availability of the Surface RT and Surface Pro ... in 17 new markets." Only Microsoft knows how many Surface tablets were shipped to all the stores in all those markets, but it was certainly considerable. If my conjecture holds true, there are lots of unsold Surfaces sitting in retail store warehouses all over the world -- Surfaces that shipped in the third calendar quarter, no doubt at full price.

I also have to wonder if Surfaces shipped to Microsoft's brick-and-mortar stores also count in the "shipped" tally, adding to both the unit count and the dollar amount. Perhaps you've been to a Microsoft store that has an extra unsold Surface or two sitting around.

Microsoft's reluctance to withdraw the Surface RT from retail outlets -- announced with the renaming of "Surface RT" into just "Surface" -- certainly adds to the inventory.

Finally, nobody knows how many of the new Surface 2 and Surface Pro 2 tablets shipped to retailers in the third calendar quarter. If there were any, those too would contribute to the $400 million and the doubling of unit volume.

Perhaps paying customers opened their wallets and spent $400 million on Surface tablets last quarter, and bought twice as many as the preceding quarter. If you want to believe those numbers, there's nothing to trip you up: Microsoft's much too good at this kind of doubletalk. Somehow, though, I doubt we got the straight story -- and given Microsoft's accounting, it's unlikely we'll ever know the truth.

This story, "Microsoft's Surface numbers don't add up," was originally published at Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow on Twitter.

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