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Microsoft details major Surface RT write-down

Microsoft details major Surface RT write-down

Microsoft has confessed to a significant overestimation of Surface RT demand, taking a $900 million write-down on unsold inventory.

Microsoft has made its latest financial statement, and in doing so finally publicly admitted just now badly it misjudged demand for its Surface RT tablet line..

In the company's most recent earnings call, it admitted that it has had to make a $900 million write-down for unsold inventory of its ARM-based Surface RT tablet devices - reflected in the recent dropping in price of the devices by nearly a third. While Microsoft has made no official sales figures for the tablets public, it is believed to be holding onto considerable excess inventory - and with a replacement rumoured to be just around the corner, that's not an ideal place to be.

Other figures in the company's earnings report, which covers the fourth quarter of its latest financial year, made for easier reading: the company ended the quarter on $19.9 billion in revenue, up from $18.1 billion for the same period last year. That rise, Microsoft explained, was helped by a significant boost in its Office 365 subscriber base, along with a 9 per cent year-on-year growth in the Server and Tools division.

An area that didn't show growth should come as no surprise: Microsoft's Windows Division reported a six per cent dip in revenue for the quarter, ending the year on a 1 per cent drop over the last financial year. With Microsoft having launched its latest-generation operating system, Windows 8, that's not something the company would have hoped to report - and a clear indicator that there's something in the claimed shrinking of the traditional PC market. Gaming, however, is on a boom, with Xbox Live revenue jumping 20 per cent in the quarter.

'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,' claimed Microsoft's chief financial officer Amy Hood during the call. 'We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE. While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.'

'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,' added chief executive Steve Ballmer, the man at the head of a major shake-up that puts him directly at the centre of all its various divisions. '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.'

For the full financial year, Microsoft's report showed $26.76 billion profits on $77.85 billion in revenue - helped by a delayed $782 million in revenue from the Office upgrade offer the company ran last year. Clearly, then, the company is hardly hurting - but investors are still anty over the figures, with Microsoft's share price dropping over seven per cent since the report was made.

34 Comments

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rollo 19th July 2013, 11:50 Quote
And people still think Microsoft will make a second surface rt. After this report be alot of people in the company wondering if that's a good idea. $900 million write down is higher than the blackberry playbook. Which suffered similar issues. ( that's about 1mil + surface rts unsold)

Moral of the story does not matter one iota how good we think the product is if it does not sell to joe public then its DOA.
Ivoryspike 19th July 2013, 12:33 Quote
Wow, that's like 5-6 million unsold units... Huge misjudgment for the demand of these things.
Corky42 19th July 2013, 13:14 Quote
I'm no accountant so maybe someone can explain something :?
According to http://www.microsoft.com/investor/EarningsAndFinancials/Earnings/PressReleaseAndWebcast/FY13/Q4/default.aspx
Quote:
Windows Division revenue grew 6% for the fourth quarter and 5% for the full year. Excluding the impact of the prior year Windows Upgrade Offer revenue deferral, Windows Division non-GAAP revenue decreased 6% for the fourth quarter and 1% for the full year. In June, Microsoft released the public preview of Windows 8.1 which will be made available to OEMs in August.
Why does the Generally Accepted Accounting Principles or simply GAAP change a 5% growth into a 1% loss
r3loaded 19th July 2013, 13:27 Quote
Might've sold better if it came with Atom instead of Tegra 3. The draw of Windows 8 vs RT is that the former gives you a full Windows machine for using desktop apps.
faugusztin 19th July 2013, 13:35 Quote
Quote:
Originally Posted by r3loaded
Might've sold better if it came with Atom instead of Tegra 3. The draw of Windows 8 vs RT is that the former gives you a full Windows machine for using desktop apps.

Might've sold better if it was not sold only in US for first few months, then only few markets after that. They still don't sell Surface RT nor Surface Pro in whole EU.
Guinevere 19th July 2013, 13:39 Quote
Quote:
Originally Posted by r3loaded
Might've sold better if it came with Atom instead of Tegra 3. The draw of Windows 8 vs RT is that the former gives you a full Windows machine for using desktop apps.

If it had come with Atom then it wouldn't be windows RT.

So basically you're saying they would have sold more tablets if they hadn't of released Windows RT at all?

I tend to agree.

People buy iPads because they want iPads. People buy Macs because they want macs. People buy windows machines because they want to run windows software.

If it's a windows machine that won't run windows software (that's how people see it) then of course it's a big ol' bucket of fail.
Gareth Halfacree 19th July 2013, 14:45 Quote
Quote:
Originally Posted by Corky42
Why does the Generally Accepted Accounting Principles or simply GAAP change a 5% growth into a 1% loss
EDIT: Sorry, got that explanation the wrong way around - that's the danger of dealing with two similar financial reports on the same morning! The Windows Upgrade Offer resulted in a $540 million *loss* (that's what the brackets mean) for the Windows division, and was deferred in non-GAAP reporting to FY13. It's this loss that has resulted in the Windows group revenue shrinking; if the $540 million loss made by the Windows Upgrade Offer is counted in FY12 instead of FY13, as it is in the GAAP report, the Windows division has actually grown this year.

I stand by my original statement, though: it's all bloody confusing, as I've proven by getting confused.
rollo 19th July 2013, 14:53 Quote
Its called creative accounting one o one how to make things look better than they really are. Not the only company that does it. Fact they still made decent profits makes me question why they have done it in the first place.
schmidtbag 19th July 2013, 15:25 Quote
Quote:
Originally Posted by Guinevere
If it had come with Atom then it wouldn't be windows RT.

So basically you're saying they would have sold more tablets if they hadn't of released Windows RT at all?

I tend to agree.

People buy iPads because they want iPads. People buy Macs because they want macs. People buy windows machines because they want to run windows software.

If it's a windows machine that won't run windows software (that's how people see it) then of course it's a big ol' bucket of fail.

Haha exactly what I was thinking. Though when you think about it, what would you do if you encountered a program that needed right-clicking, or the extra instructions of x86? A 2-finger tap wouldn't work because of how inaccurate that would be. I don't blame MS for not even attempting to add an x86 compatibility layer, but it sure hurt them. Also, I heard the first Surface RT models were physically faulty, which probably didn't help.
faugusztin 19th July 2013, 15:27 Quote
To be honest, they realized the RT mistake and that is why we got the 8" Acer 1280x800 Windows 8 tablet (Acer W3)... Too bad Acer screwed up with the bad TN display, but they are bringing a version with better display soon. 8" 1280x800, Atom, 2GB, 64GB SSD Windows 8 tablet for 380€, why not, just that display needs to be IPS instead of TN.
Corky42 19th July 2013, 15:56 Quote
Quote:
Originally Posted by Gareth Halfacree
I stand by my original statement, though: it's all bloody confusing, as I've proven by getting confused.

You aint kidding, I still don't have a clue what they mean when they say non-GAAP. Hell i don't even know what GAAP is :)
I guess its the same kind of creative accounting company's use to dodge thier tax's
ssj12 19th July 2013, 20:02 Quote
Quote:
Originally Posted by r3loaded
Might've sold better if it came with Atom instead of Tegra 3. The draw of Windows 8 vs RT is that the former gives you a full Windows machine for using desktop apps.

It would have sold better if it was Android or had Windows 7.. and Tegra 4.
rollo 19th July 2013, 20:30 Quote
No andriod tablet has been a steller success, Remove the nexus line which is sold at cost anyway. And name another andriod tablet that has made its maker real profits. ( Asus e pad thing at a push assuming its sales are what have been rumoured. )

No one on andriod will give you a real sales figure for anything to do with its tablet range. They will happily give you shipped numbers, Microsoft did that 3 months later they write down a $900 mil stock loss.

I may be wrong but I think amazon is the top selling andriod tablet and its not even officially andriod.

Tegra 4 was not made when the surface rt was released so how could of it of had it? Theres also been windows 7 tablets that have not sold.

People just need to face facts and what ive said for a long time there is no real tablet market. Apple makes the profits selling a device to bundle with its Iphone range. Id love to see how many people buying a Apple tablet do not own a Iphone as it will be shockingly low figure id imagine.

We can add the Surface RT to the Blackberry playbook and a million other andriod tablets that have been made ( feels like a million lol) as Dead. NEXT
schmidtbag 19th July 2013, 20:51 Quote
Quote:
Originally Posted by rollo
No andriod tablet has been a steller success, Remove the nexus line which is sold at cost anyway. And name another andriod tablet that has made its maker real profits. ( Asus e pad thing at a push assuming its sales are what have been rumoured. )

No one on andriod will give you a real sales figure for anything to do with its tablet range. They will happily give you shipped numbers, Microsoft did that 3 months later they write down a $900 mil stock loss.

I may be wrong but I think amazon is the top selling andriod tablet and its not even officially andriod.

Tegra 4 was not made when the surface rt was released so how could of it of had it? Theres also been windows 7 tablets that have not sold.

People just need to face facts and what ive said for a long time there is no real tablet market. Apple makes the profits selling a device to bundle with its Iphone range. Id love to see how many people buying a Apple tablet do not own a Iphone as it will be shockingly low figure id imagine.

We can add the Surface RT to the Blackberry playbook and a million other andriod tablets that have been made ( feels like a million lol) as Dead. NEXT

I disagree. While I personally don't like tablets, there is a market for them. People like them because they do what the average person wants while being very cheap and intuitive. ARM is doing decently well because of tablets, and PC sales are doing terrible because of tablets. People aren't finding the need to replace their computers anymore (due to Windows 7 not sucking and modern processors are barely being pushed for everyday tasks), but tablets are taking away sales from laptops, probably because laptop technology has always been mediocre; tablets live longer and generally perform better than laptops for the average person's tasks.
faugusztin 19th July 2013, 21:48 Quote
@rollo: Apple is selling 20 millions iPads per quarter, Samsung is selling 8 millions Galaxy Tabs per quarter. Sure, they contain all variants, but i am sure Samsung is doing pretty fine too. Btw Nexus 7 is sold at cost only at few countries where Google Play store exists. Elsewhere they are sold by Asus at profit. Same for Nexus 4 - initially it was sold for 450-500€, only lately it dropped to the current 330-350€ price.
sp4nky 19th July 2013, 22:14 Quote
Quote:
Originally Posted by faugusztin
Same for Nexus 4 - initially it was sold for 450-500€, only lately it dropped to the current 330-350€ price.

I bought my Nexus 4 for £239, which is around 280€
faugusztin 19th July 2013, 22:41 Quote
Quote:
Originally Posted by sp4nky
I bought my Nexus 4 for £239, which is around 280€

In markets where Google Play store is present ? Sure. Elsewhere ? Good luck (outside of the fact that first batches arrived to Central Europe sometime around March i think) :
http://hexus.net/mobile/news/android/47638-lg-nexus-4-pricing-disparity-riles-european-retailers/
Andy Mc 20th July 2013, 08:58 Quote
So when can we expect to see these selling for peanuts then?
Corky42 20th July 2013, 19:09 Quote
Looks like the markets didn't like Microsoft latest financial statement.
http://www.hindustantimes.com/technology/Market-Updates/Microsoft-shares-hit-by-biggest-sell-off-since-2009/SP-Article1-1095418.aspx
Quote:
Microsoft shares fell more than 11 percent on Friday, their biggest plunge in more than four years
Quote:
The results provoked fresh skepticism of Chief Executive Steve Ballmer's new plan to reshape the company around devices and services, unveiled last week.

Maybe Gates is starting to regret leaving Ballam in charge, as he lost $1.6 billion yesterday
http://newlaunches.com/archives/bill-gates-lost-1-6-billion-yesterday.php
Nexxo 20th July 2013, 20:28 Quote
I think he'll manage. :p
faugusztin 20th July 2013, 20:42 Quote
Quote:
Originally Posted by Corky42
Looks like the markets didn't like Microsoft latest financial statement.

Markets don't like everything. Lower sales than market expected ? Price drops. More ? Price drops. Less profit ? Price drops. More ? Price drops.

Don't try to search for logic in share market. It has none.
Corky42 20th July 2013, 22:26 Quote
True, who worries about $1.6 billion when you are worth an estimated $67 billion
faugusztin 20th July 2013, 22:45 Quote
To be honest, that is virtual $1.6 billion from virtual $67 billion. Because that is the "valuation" of the company and not what the company is really worth.
DC74 21st July 2013, 00:26 Quote
Let this be a lesson to all companies who arrogantly think people will want an item without first doing a lot more consultations. Hopefully Microsoft will learn and adapt their future policies to prevent this happening. There are still the Windows 8 and new Xbox blunders to fully account for. I hope for Microsoft's sake they appoint people with more sense to manage development of future products or they will be done for.
Nexxo 21st July 2013, 00:30 Quote
People don't know what they want. It's why they buy so much meaningless crap.
RedFlames 21st July 2013, 00:45 Quote
The problem is MS are incapable of selling stuff... they cocked it up with the Zune... and they're cocking it up with the surface... they need to grab people and scream "OUR THING IS ****ING AWESOME!!! YOU WANT IT!!! BUY ONE!!!"

Right now it's

Apple: You want our iThing because SHINY!!!!

Samsung: You want our Galaxy thing because IT'S NOT AN iTHING!!!

MS: erm exuse me... we have this um... thing over here... it does stuff the others don't... we'd be rather appreciative if you bought one....

Google: You want our Nexus thing because IT'S CHEAP!!!!

Nokia: You want our Lumia thing because SUPPORT THE UNDERDOG!!!
faugusztin 21st July 2013, 01:06 Quote
@RedFlames: i will point back to my first post again - i can buy iAnything from Apple. I can buy Galaxy anything from Samsung. I can buy Nexus Anything from the manufacturers who make it for Google. I can buy Lumia anything... But i can't buy any of the Surface models. They are not even trying to sell them - i mean if you got that much in stock, one would think they would try to sell their stock through other distribution channels. But no, they still are stuck to their current 20-something markets.
RedFlames 21st July 2013, 01:58 Quote
@faugusztin, I'm well aware of how badly eastern Europe gets **** on regarding tech launches [worse still for non-EU countries], most US-based companies [and some European ones] are under the assumption that everything over there is powered by goats and you've only just figured out how fire works...

The Zune [later models particularly] was great... but it didn't matter because you couldn't buy one...

Surface is a good product, but while you can buy one [well I can...], they haven't given the masses a reason to buy one... it's just another tablet [in the countries they can be arsed to sell it in]...

Maybe they'll cotton on to the fact Electricity/The internet* has made it to most of the world... and that the 'If we build it they will come' mentality really isn't working for them... maybe...


* Well the xbox lot have... sort of... but they assume because it's super-fast and awesome there, that it's the same everywhere...
koola 21st July 2013, 09:26 Quote
You know it's a fail train when the sales rep recommends an ipad lol. That really happened to me at the MS booth in downtown shanghai when I was playing with one.
Corky42 21st July 2013, 11:01 Quote
Quote:
Originally Posted by faugusztin
To be honest, that is virtual $1.6 billion from virtual $67 billion. Because that is the "valuation" of the company and not what the company is really worth.

The whole world operates on virtual money, its very rare for actual cash to pass hands anymore.
You get paid with virtual money and then use that virtual money to pay your bills, credit cards, mortgage.
Do you think peoples wealth is only estimated on what cash they have in their pockets, or stuffed under the mattress ? :)
Nexxo 21st July 2013, 11:17 Quote
Many people naïvely think that if Bill Gates owns $67 billion, he could in theory go to the bank tomorrow and just withdraw it all. They don't realise almost all of it is tied up in shares and assets.
faugusztin 21st July 2013, 11:55 Quote
Quote:
Originally Posted by Corky42
Do you think peoples wealth is only estimated on what cash they have in their pockets, or stuffed under the mattress ? :)

My point was that the share price is pretty much valid only for minor transactions at that exact moment, and fluctuations of share price are normal. So Bill Gates didn't lose $1.6 billion, and to be honest, if he would try to sell all his shares, price of MS share would drop much, much more.

I think Bill and MSFT will do just fine, they are back to the April 2013/September 2012 price. There were only few periods before where MSFT share price was higher - October-December 2007 and the Dot-com bubble of 1999-2001.

Plus point of owning Microsoft share is mostly not in the share price anymore, but in the dividends - $0.8-$0.9 per year, so in last 8 years you got back 1/4 of the share price back in dividends.
Corky42 21st July 2013, 12:03 Quote
In the same way most peoples money are tied up in their house, people can borrow money based on what their assets are worth. In theory although he cant just go down the local cash machine and withdraw $67 billion,(it would take weeks to dispense that much cash :D)

He can borrow money based on what the lender thinks his assets are worth, in the same way people who own property can re-mortgage it to free up some money.
miller 21st July 2013, 13:30 Quote
It's often seemed to me that MS have approached selling their hardware with the same attitude that they sold their OS's for years, by that I mean MS brought home computers to the masses with their OS's and adopted the attitude that everyone has to have our OS's as there is nothing else for the vast majority of home PC users so when MS release hardware products they have the same attitude and assume that it's something that everyone must have and there is no alternative, MS really need a major change of attitude to the markets and countries they are trying to sell to
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